4Q 2018 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

4Q18 Property Pictured Above: 2005 Turning Basin Drive, Houston, Texas 77029

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 2018

WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that superb customer service and professional expertise are two of the cornerstones to delivering great service to our clients in the real estate industry. And in real estate, professional expertise is achieved largely by having excellent market knowledge. This month, you will receive several year-end “market reports” focusing on Houston’s industrial real estate. These reports will be filled with data and statistics, but will these numbers be the right numbers?

Our market report stands apart because we track and analyze the data unlike anyone else. Our report contains only data and statistics for institutionalgrade, dock-high and semi-dock buildings. Additionally, our report only tracks concrete tilt-wall and masonry buildings, which means all metal construction has been removed from our data set. While grade-level, metal, and manufacturing buildings play an important role in Houston’s industrial market, we believe they should be tracked separately from typical institutional-grade warehouses.

Does this change in the underlying data set make a difference in the final statistics? You bet it does. The 2018 year-end reports that you have or will receive from others will likely state an overall industrial vacancy rate of approximately 5%. However, when you redefine the base data set to focus only on institutional product, a different picture emerges. Specifically, the vacancy factor increases substantially to 7%. While this isn’t positive news for our landlord clients, it is important that our clients are making good decisions based on solid and correct information.

Another significant feature that sets our report apart is our submarket boundaries. We noticed that most of the standard submarket definitions used in CoStar and other market reports are not consistent with how the submarkets actually behave. For example, in East Houston, Interstate 10 serves as the boundary between the NE and SE submarkets, but there are dozens of buildings that directly compete with each other on both sides of the freeway.

We believe submarkets should show a complete picture of the surrounding competitive set, so we created our own, not based on arbitrary physical boundaries like roads or neighborhoods, but on which buildings actually compete against each other within a specific region of the Houston market.

We hope you enjoy reading our report and find the information useful. If you have any questions, please don’t hesitate to call or email a member of our team.

Sincerely, The HLC Houston Industrial Team

3

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 2018

TABLE OF CONTENTS 1. HOUSTON INDUSTRIAL SUBMARKETS

1 2 3

2. OVERALL HOUSTON MARKET

A. Industrial Trends & Transactions

B. Facts and Figures

2. SUBMARKET INTELLIGENCE

A. Far West & Katy

B. C. D. E. F. G.

Northwest Houston North Houston Near East Houston Port Area South Houston Southwest Houston

5

HOUSTON HLC SUBMARKET COVERAGE

TOMBALL

FAR NORTH 1,634,726 SF

PRAIRIE VIEW SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

HUMBLE

LAKE HOUSTON

NORTH 29,737,839 SF

NORTHWEST 73,697,552 SF

MONT BELVIEU

NEAR EAST 20,510,218 SF KATY

BROOKSHIRE

HOUSTON

CBD 1,643,969 SF

SOUTHWEST 23,689,610 SF

FAR WEST/KATY 12,448,965 SF

SHIP CHANNEL

GALLERIA

PORT AREA 36,397,746 SF

BAY TOWN

PASADENA

MEDICAL CENTER

LA PORTE

SOUTH 20,854,122 SF

SUGAR LAND

ELLINGTON AIRPORT

RICHMOND MISSOURI CITY

6

HOBBY AIRPORT

TRINITY BAY

HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above.

PEARLAND

HLC HOU

INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK

INDUSTRIAL MARKET EXPERTS

Houston’s industrial real estate market experienced a strong fourth quarter which saw overall vacancy dip to 7 percent from 7.6 percent at the close of the third quarter. This decrease in vacancy is due in part to only 1,027,653 SF of new construction deliveries during 4Q. This was a decrease of 75 percent from 3Q, which saw over 4,000,000 SF of deliveries. With 41 buildings under construction accounting for nearly 10,000,000 SF at the close of 4Q, we expect vacancy to tick slightly upward moving forward as some speculative developments come online in the first half of 2019.

New speculative construction continues to be the big story in Houston, with almost every submarket having new bulk warehouses either currently under construction or proposed. As Greater Houston’s regional population continues to increase, more outlying areas will start to see these new developments break ground. For example, we are seeing new construction in Katy along the Grand Parkway, as well as in Southwest Houston and Missouri City along the Sam Houston Parkway (Beltway 8)— both areas that have not historically been hotbeds for distribution warehouses.

KELLY LANDWERMEYER

JOHN KRUSE

Managing Principal klandwermeyer@hlhouston.com 713.602.3762

Market Director jkruse@hlhouston.com 713.602.3756

TRENDS & TRANSACTIONS • The Northwest, North, and Port submarkets are seeing the majority of Houston’s new industrial construction, with the North and Port submarkets leading the way. The Southwest submarket has also emerged as an area with a large amount of new construction and ranks fourth out of the submarkets with just under 1M SF under construction at the close of 4Q. • Vacancy is lowest in the Far West and Southwest submarkets. With most of Greater Houston’s population growth occurring west of the city, we expect more new construction starts in these submarkets moving forward.

Absorption

BRAD SEGRETO

CRAIG BEAN

Market Associate bsegreto@hlhouston.com 713.602.3758

Market Associate cbean@hlhouston.com 713.602.3752

vs. Prev. Qtr

vs. 12 Mths Ago

2,261,598

2,272,029

1,432,270

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.0%

7.5%

6.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,556,401

5,089,033

6,618,794

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

9,866,924

9,644,464

8,345,769

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,027,653

4,026,124

500,000

7

HLC HOU FACTS & FIGURES

OVERALL HOU 8.5%

5,000,000

8.0% 4,000,000 7.5% 7.0%

3,000,000

6.5% 2,000,000 6.0% 5.5%

1,000,000

5.0%

Market

Existing Inventory

0

Vacancy

4.5% 4.0%

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

Far West/Katy

64

12,448,965

378,875

385,673

3.1%

Northwest

783

73,697,552

6,056,632

6,576,597

8.9%

North

282

29,737,839

2,198,606

2,301,000

7.7%

Near East

168

20,510,218

1,275,838

1,309,533

6.4%

Port

127

36,397,746

1,788,326

2,041,326

5.6%

South

226

20,854,122

1,159,606

1,171,996

5.6%

Southwest

246

23,689,610

965,717

1,096,576

4.6%

Far North

21

1,634,726

153,747

200,847

12.3%

CBD

24

1,643,969

217,819

217,819

13.2%

Totals

1,941

220,614,747

14,195,166

15,301,367

7.0%

(1,000,000) 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Absorption

3Q 17

4Q 17

1Q 18

2Q 18

Deliveries

3Q 18

4Q 18

Vacancy

VACANCY - OVERALL HOU 9.0% 8.0%

7.0%

7.1%

7.0% 6.9%

6.5%

6.0% 5.0% 4.0% 3.0% 2.0%

0.5%

0.2%

1.0% 0.0%

4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Direct

3Q 17

4Q 17

1Q 18

2Q 18

Sublet

3Q 18

4Q 18

Total

ABSORPTION - OVERALL HOU 8,000,000 7,000,000 6,000,000 5,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West/Katy

2,308,670

1,972,665

327,440

435,382

Northwest

(432,858)

1,642,565

1,937,791

5,263,029

Market

4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

3Q 17

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

North

1,690,477

601,000

2,835,509

3,918,897

Near East

(172,835)

0

0

1,196,662

Port

3,225,428

4,034,419

3,694,819

1,822,137

South

(254,410)

38,500

0

664,832

Southwest

1,390,398

596,500

906,980

1,977,556

Far North

(32,735)

0

0

54,580

CBD

(134,542)

0

0

0

4,000,000

Totals

7,587,593

8,885,649

9,702,539

15,333,075

2,000,000

Source: CoStar

Total Net

Leasing Activity

CONSTRUCTION - OVERALL HOU 12,000,000

10,000,000

8,000,000

6,000,000

0 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

Delivered Inventory

8

2Q 17

2Q 17

3Q 17

4Q 17

1Q 18

2Q 18

Under Construction

3Q 18

4Q 18

SUBMARKET INTELLIGENCE FAR WEST & KATY

HLC OUTLOOK The Far West/Katy submarket follows along Interstate 10 and stretches from Highway 6 out to Brookshire and up and down the newly developed Grand Parkway. The submarket benefits from rapid population growth in West Houston, Richmond, Katy, and the surrounding communities. Additionally, the submarket’s location along Interstate 10 and proximity to San Antonio and Austin (the seventh and eleventh largest U.S. cities, respectively) make it an attractive location for new regional e-commerce distribution hubs.

KATY

BROOKSHIRE

15,742,313 SF

Absorption

New construction has been common in this submarket in recent years and with 327,440 SF currently under construction, we expect that trend to continue. Demand has mostly remained steadfast throughout this inventory expansion, though. And seeing as though the submarket entered this cycle with vacancies below 4 percent, this left more room for softness due to supply-side pressure. Absorption increased significantly in 4Q to 850,388 SF from negative absorption of 23,459 SF in the previous quarter.

vs. Prev. Qtr

vs. 12 Mths Ago

850,388

(23,459)

31,989

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.1%

7.8%

6.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

32,282

43,994

497,455

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

327,440

610,320

1,689,785

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

282,880

673,785

With almost all new development occurring along the I-10 corridor, the question that remains to be answered is whether we will begin to see new industrial development migrate north along the Grand Parkway (Highway 99) in the near future.

NEW DEVELOPMENTS • MARS Properties’ High Point West – 89,440 SF • Transwestern’s West Ten Phase II Building 3 – 238,000 SF

LARGE EXISTING VACANCIES • 1325 S Creek Drive – 71,555 SF • 15740 Park Row – 36,600 SF • 16115 Park Row – 33,946 SF

501 Commerce Parkway

VITAL STATS 14.0%

1,600,000 1,400,000

12.0%

1,200,000 10.0%

1,000,000

8.0%

800,000

6.0%

600,000 400,000

4.0%

200,000 2.0%

0 (200,000)

0.0% 4Q 15

1Q 16

2Q 16

3Q 16

Absorption

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

Source: CoStar

9

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

HLC OUTLOOK

SPRING

HUMBLE

GEORGE BUSH INTERCONTINENTAL AIRPORT CYPRESS

130,489,845 SF

KATY

New speculative construction continues to occur in Northwest Houston, although land constraints are increasingly becoming a factor for developers to consider. Almost all the land along the West Sam Houston Parkway has been developed and affordable infill locations are becoming harder to locate.

HOUSTON

Absorption

vs. Prev. Qtr

The vacancy rate was 8.9 percent at the close of the 4Q, which is a decrease from 9.6 percent in 3Q. Absorption increased almost two-fold from 3Q to 4Q, from 278,652 SF to 577,046 SF. Before that, we saw more than 1M SF in negative absorption in 2Q 2018, and that marked the fifth consecutive quarter with negative absorption at the time.

While fundamentals are looking up for this region of Houston, new speculative construction could weigh negatively on the vacancy rate for the next several quarters; currently there is just under 2M SF under construction.

vs. 12 Mths Ago

577,046

278,652

(136,504)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.9%

9.6%

6.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,000,633

1,737,086

1,708,315

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,937,791

2,062,706

1,905,904

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

124,915

837,870

The Northwest submarket is far and away the largest of the seven major submarkets we track. With approximately 74M SF of existing product, it is more than double the size of the second largest (the Port submarket). Geographically located north of Interstate 10, along the Highway 290 and West Sam Houston Parkway corridors, the submarket offers somewhat of a “Main and Main” location for industrial tenants. With easy access to a large population base, it is ideal for e-commerce and “last mile” businesses, as well as businesses that service household needs such as plumbing, flooring, cabinet, and other various building supply-related items.

DEALS ON THE MARKET • 8100 Kempwood Drive – 219,489 SF NEW DEVELOPMENTS • Clarion Partners/Trammell Crow’s Fallbrook Pines

-

VITAL STATS 1,000,000

10.0% 9.0%

500,000 8.0% 0

7.0% 6.0%

Business Park Phase II – 660,073 SF • Crow Holdings’ Highland Grove Business Park – 458,280 SF • IDI Logistics’ West Little York Distribution Center – 153,188 SF • First Industrial’s First 290 at Guhn Road – 126,250 SF

LARGE EXISTING VACANCIES • 1501 Seamist Drive – 517,182 • 10700 Telge Road – 401,753 SF • 9700 W Gulf Bank Road – 245,319 SF • 14902 Sommermeyer Street – 203,680 SF • 10901 Tanner Road – 195,951 SF • 3480 W 11th Street – 191,520 SF 8100 Kempwood Drive

-500,000

5.0% -1,000,000 4.0% 3.0%

-1,500,000 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

10

Source: CoStar

SUBMARKET INTELLIGENCE NORTH HOUSTON

TOMBALL

HLC OUTLOOK

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

The North submarket is defined as the area between Veterans Memorial Drive to the west and Highway 59/Interstate 69 to the east moving north from Loop 610 to Montgomery County. The submarket provides a strategic location for companies looking for convenient access to George Bush Intercontinental Airport, as well as three of Houston’s most critical thoroughfares: Interstate 45, Sam Houston Parkway, and Highway 59/Interstate 69.

HUMBLE

LAKE HOUSTON

This submarket has been one of the fastest growing submarkets in recent years, growing by approximately 37 percent on a square footage basis since 2010 (there was 18,537,312 SF of product existing at the close of 2010 compared to 29,737,839 SF today). Over the last year, vacancy has decreased substantially in the North submarket, falling from 11.6 percent at the close of 4Q 2017 to 7.7 percent in 4Q 2018. This is due largely to healthy absorption numbers seen each quarter of 2018.

52,875,526 SF

HOUSTON

Absorption

vs. Prev. Qtr

259,033

328,450

743,589

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.7%

8.6%

11.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

330,327

1,239,108

1,071,456

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,835,509

2,726,958

601,000

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

0

0

0

Demand was impressive in 2018 for the submarket. Many of the vacancies that were present from the last supply wave (2013-2015) have finally leased. Approximately 2.8M SF is currently under construction, with a healthy portion of that representing build-to-suit developments.

vs. 12 Mths Ago

NEW DEVELOPMENTS • Liberty Property Trust’s Grocers Supply Distribution Center (build-to-suit) – 727,600 SF

• Liberty Property Trust’s Conn’s Distribution Center (build-to-suit) – 656,658 SF

• Archway Property’s Air 59 Logistics Center – 685,400 SF

• Clay Development & Construction’s Sheldon

LARGE EXISTING VACANCIES • 600 Fallbrook Drive – 250,681 SF • 15600 Morales Drive – 228,630 SF • 15450 Diplomatic Plaza Drive – 125,120 SF • 16680-16684 Air Center Boulevard – 119,125 SF • 16605 Air Center Boulevard – 114,400 SF • 8575 Volta Drive – 112,000 SF

Business Park – 214,300 SF

VITAL STATS 18.0%

1,400,000

16.0%

1,200,000

14.0%

1,000,000

12.0%

800,000

10.0%

600,000

8.0%

400,000

6.0%

200,000

4.0%

0

2.0%

(200,000)

0.0%

600 Fallbrook Drive

(400,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

Source: CoStar

11

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

HLC OUTLOOK Geographically, the Near East submarket borders downtown Houston and runs east, ending outside of Loop 610. It enjoys excellent freeway access via Interstate 10 Loop 610. The submarket has a robust active rail infrastructure, which is used to serve the many plants and refineries along the Gulf Coast. Historically, a large amount of third-party logistics companies (3PL) have called the Near East submarket home, and we continue to see requirements for 3PLs on this side of town.

47,457,468 SF HOUSTON

This submarket is home to a large amount product built in the 1970s and 1980s, making it one of the oldest industrial hubs in the metro region. There has been little new construction in this submarket over the last 20 years and the typical tenant here has historically been more price-sensitive relative to other parts of Houston; for this reason, justifying new-construction rents has been a challenge. However, multiple new industrial projects appear to be on the horizon. A handful of developers have quietly been acquiring land within the submarket and we anticipate new construction will be announced in 2019.

SHIP CHANNEL

Vacancy remained above 6 percent in the Near East submarket during 4Q, decreasing slightly from 6.6 percent in 3Q to 6.4 percent. For all of 2018, there was negative absorption in Near East. However, 2019 should see vacancy tighten as some large existing vacancies are leased.

PASADENA

MEDICAL CENTER

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

33,969

(143,680)

(216,311)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.4%

6.6%

5.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

131,926

538,292

505,810

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

LARGE EXISTING VACANCIES • 3401 Navigation Boulevard – 238,011 SF • 221 Portwall Street – 162,178 SF • 4732 Darien Street – 118,578 SF • 4849 Homestead Road – 102,680 SF • 4545 Eastpark Drive – 81,295 SF • 9040 Railwood Drive – 80,000 SF

4849 Homestead

-

VITAL STATS 7.0%

100,000

6.0%

50,000

5.0%

0

4.0%

(50,000)

3.0%

(100,000)

2.0%

(150,000)

1.0%

(200,000)

Source: CoStar

0.0%

(250,000) 4Q 15

1Q 16

2Q 16

Absorption

12

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

SUBMARKET INTELLIGENCE PORT AREA

HLC OUTLOOK

MONT BELVIEU

The Port submarket provides convenient access to Interstate 45, Highway 225, Highway 146, and Interstate 10 east to Baytown. This network of highways allows for quick access to and from both the Barbours Cut container terminal and the Bayport container terminal, where almost all foreign inbound shipments of goods come into the Houston market.

HOUSTON BAY TOWN

56,283,291 SF SHIP CHANNEL

GALLERIA

Over the last decade, the Port submarket has emerged as one of the strongest submarkets in Houston with a surge in speculative development and strong absorption. In fact, this submarket has only seen one quarter of negative absorption since 4Q 2015. This can be attributed to several factors, including its strategic location near the Port of Houston, proximity to Gulf Coast plants and refineries, and the extensive multi-modal transportation infrastructure in the area, including an extensive rail network.

PASADENA

MEDICAL CENTER

LA PORTE HOBBY AIRPORT

ELLINGTON AIRPORT TRINITY BAY

PEARLAND

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

50,280

1,198,593

1,426,779

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.6%

4.1%

3.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

446,277

740,486

1,375,173

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,694,819

3,337,500

3,514,080

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

619,858

1,964,469

500,000

Rent growth has been positive for much of the current cycle, creating a strong appetite for institutional investment within the submarket. New speculative developments have been announced frequently over the last two years and the construction boom shows no signs of slowing anytime soon.

Vacancy did increase to 5.6 percent from 4.1 percent in 3Q. However, vacancy should go back down in 1Q 2019 after a few large lease transactions that were signed recently commence. One of those large leases was Valvoline signing a 472,000 SF deal at 1302 Wharton Weems Boulevard within Liberty Property Trust’s Port Crossing Commerce Center. The question moving forward will be can the roughly 3.2M SF of unfinished new construction get leased quick enough to keep vacancy in the low single digits for the remainder of the calendar year, or will we see a softening of the submarket due to too much spec coming online at once?

NEW DEVELOPMENTS • National Property Holdings’ 225,500 SF Ameriport

349 Old Underwood Road

Industrial Park Building 11

• Crow Holdings’ 349,000 SF Victory Commerce

VITAL STATS 10.0%

3,000,000

9.0%

2,500,000

8.0% 2,000,000

7.0% 6.0%

1,500,000

5.0% 1,000,000

4.0% 3.0%

Center • Triten Real Estate Partners’ 102,863 and 233,190 SF Bayport North Logistics Center I and II • Artis REIT’s 519,224 SF PBP build-to-suit • Sealy/Investment & Development Ventures’ 130,074 and 260,148 SF Thompson 10 Logistics Center

500,000

2.0% 0

1.0% 0.0%

(500,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

LARGE EXISTING VACANCIES • 359 Old Underwood Road – 350,000 SF • 2700 East Freeway – 294,323 SF • 4311 Malone Drive – 207,425 SF • 1706 S 16th Street – 157,200 SF

Source: CoStar

13

SUBMARKET INTELLIGENCE SOUTH HOUSTON

HOUSTON

HLC OUTLOOK

SHIP CHANNEL

GALLERIA

PASADENA

MEDICAL CENTER

HOBBY AIRPORT

38,991,815 SF

ELLINGTON AIRPORT MISSOURI CITY PEARLAND

Absorption

vs. Prev. Qtr

With just over 20M SF of product, the South submarket is the third smallest of the seven major submarkets we track in Houston. Large portions of this area have not been developed yet, making this submarket potentially the least landconstrained. However, due to the lack of population growth relative to the Northwest or Far West submarkets, there has not been a strong demand for new development in this area. That could change as other submarkets run out of developable land and population growth accelerates in communities such as Pearland and Missouri City.

At the close of 4Q, vacancy was 5.6 percent in the South submarket, which was unchanged from 3Q. We did see the slightest bit of negative absorption; however, it was not enough to affect overall occupancy numbers.

vs. 12 Mths Ago

(25,042)

(128,114)

(101,720)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.7%

5.6%

4.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

85,497

218,667

91,219

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

38,500

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

The South submarket benefits from its proximity to Houston’s Medical Center just south of downtown and is defined by a high volume of flex buildings designed to service the wide range of health care providers within the Medical Center.

Geographically, the submarket stretches from just north of Loop 610 south to Beltway 8.

-

-

VITAL STATS 6.0%

DEALS ON THE MARKET • Texas Technology Park – 569,661 SF

9230 Kirby Drive

LARGE EXISTING VACANCIES • 750 Almeda Genoa Road – 125,000 SF • 3203 S Sam Houston Parkway E – 108,000 SF • 3440 S Sam Houston Parkway E – 72,070 SF • 6603 Kirbyville Street – 63,182 SF

500,000 400,000

5.0%

300,000

4.0%

200,000 3.0% 100,000 2.0%

0

1.0%

(100,000)

0.0%

(200,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

14

Source: CoStar

SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

HOUSTON

HLC OUTLOOK

45,099,564 SF GALLERIA

MEDICAL CENTER

The business-friendly local governments in Fort Bend County and available Triple Freeport Tax Exemption are two big reasons why industrial developers are bullish on the Southwest submarket. Furthermore, the labor demographics in the area are excellent and rapid population growth—which has been the norm for over a decade in Fort Bend County—is expected to continue in communities like Sugar Land and Richmond.

SUGAR LAND

RICHMOND

The Southwest submarket has seen steady growth in new construction over the last few years and it continues to increase with new speculative and build-to-suit projects along the Sam Houston Parkway in Missouri City on the horizon for 2019. At the close of 4Q, there was almost 1M SF of speculative construction ongoing with more planned in the immediate future.

MISSOURI CITY

Vacancy sat at 4.6 percent at the close of 4Q, which was a significant decrease from the 6.3 percent figure in 3Q. Vacancy has been trending down since 2016 in the Southwest submarket due to steady positive absorption.

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

398,811

833,029

49,364

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

4.6%

6.3%

8.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

504,259

528,469

1,338,271

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

906,980

906,980

596,500

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

550,000

-

VITAL STATS 12.0%

1,200,000

10.0%

1,000,000

8.0%

800,000

6.0%

600,000

4.0%

400,000

2.0%

200,000

0.0%

NEW DEVELOPMENTS • Transwestern’s Southwest Commerce Center –

12101 McLain

477,355 SF

• Hines’ Boulevard Oaks Business Park – 429,625 SF LARGE EXISTING VACANCIES • 12200 Parc Crest Drive – 105,300 SF • 1631 Gillingham Lane – 88,200 SF • 12505 Reed Road – 68,893 SF • 14453 Hillcroft Street – 56,250 SF • 12121 McLain Road – 54,340 SF

Source: CoStar

0 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar

15

DALLAS

5950 Berkshire Lane Suite 900 Dallas, Texas 75225 T 972.241.8300 F 972.241.7955

FORT WORTH

300 Throckmorton Street Suite 550 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017

www.holtlunsford.com

HOUSTON

11757 Katy Freeway Suite 250 Houston, Texas 77079 T 713.850.8500 F 713.850.8550