2Q 2019 Houston Industrial Market Brief

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Market Brief...

Houston

INDUSTRIAL

2Q19 Property Pictured Above: Intercontinental Distribution Center | Houston, Texas 77032



HOUSTON INDUSTRIAL MARKET BRIEF 2Q 2019

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 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 most others. Our report contains only data and statistics for institutional-grade, 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. Most reports focusing on Houston’s industrial market will likely peg the overall vacancy rate at between 5.5 and 7 percent this quarter. 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 8.9 percent. 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 based not 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

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HOUSTON INDUSTRIAL MARKET BRIEF 2Q 2019

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 PRAIRIE VIEW

FAR NORTH 1,637,034 SF

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

HUMBLE

NORTH 32,147,490 SF

LAKE HOUSTON

NORTHWEST 75,364,089 SF MONT BELVIEU

NEAR EAST 20,512,009 SF BROOKSHIRE

KATY

HOUSTON

SOUTHWEST 24,686,083 SF

FAR WEST/KATY 12,908,359 SF

PORT AREA 40,244,178 SF

CBD 1,533,443 SF

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE HOBBY AIRPORT

SOUTH 21,008,338 SF

SUGAR LAND

ELLINGTON AIRPORT

RICHMOND

6

MISSOURI CITY

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

2Q 2019 saw market-wide vacancy increase to a level that we have not seen in Houston since 2011. With total vacancy at 8.9% currently, looking back, we must go to 4Q 2011 before we see that number again. It should be noted, however, that between 2009 and 2011, the vacancy rate generally stayed well above 10% market-wide. So, we do not see a reason to panic just yet. However, we would urge caution heading into the second half of this year and 2020. Most of the increase in vacancy can be attributed to a wave of new deliveries that have yet to be absorbed. There is no doubt Houston has seen a historically large amount of speculative construction over the last 12 months and, while signs are starting to appear that suggest it may be slowing some, when the dust settles, there will likely be a large amount of space left to be absorbed. Annual net absorption for distribution space has averaged around 6-8M SF per year going back to 2012. The submarkets seeing the most speculative construction right now are the North, Port, Northwest, and Southwest submarkets. The investment sales market has been relatively slow in Houston during the first part of 2019. However, we do expect to see a slight uptick in activity during the second half of the year.

KELLY LANDWERMEYER

JOHN KRUSE

Managing Principal klandwermeyer@hlhouston.com 713.602.3762

Market Director jkruse@hlhouston.com 713.602.3756

TRENDS & TRANSACTIONS • The North, Port, Northwest, and Southwest submarkets are seeing the majority of Houston’s new industrial construction with the North and Port submarkets leading the way. • With all the new product set to be delivered this year, absorption will be a key indicator to gauge the overall health of the market. • Vacancy is lowest in the Far West, Port, and Southwest submarkets. The Far West and Southwest submarkets’ reason for success has to do primarily with population growth occurring in the western suburbs, while the Port submarket’s success can be largely attributed to the recent growth in the plastic resin exporting industry.

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

1,848,861

1,449,685

610,443

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.9%

7.6%

6.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

3,615,653

3,254,858

5,155,102

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

18,641,227

19,929,570

10,900,752

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,405,012

3,191,212

1,523,195

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HLC HOU FACTS & FIGURES

OVERALL HOU

9.5%

6,000,000

9.0% 5,000,000

8.5% 8.0%

4,000,000

7.5% 3,000,000

7.0% 6.5%

2,000,000

6.0% 1,000,000

5.5% 5.0%

Market

Existing Inventory

Vacancy

0

4.5% (1,000,000)

4.0%

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

Far West/Katy

67

12,908,359

772,310

791,353

6.1%

Northwest

790

75,364,089

8,124,681

8,653,839

11.5%

North

289

32,147,490

2,501,869

2,659,695

8.3%

Near East

168

20,512,009

1,478,425

1,526,266

7.4%

Port

139

40,244,178

2,606,408

2,706,408

6.7%

South

225

21,008,338

1,505,283

1,577,728

7.7%

Southwest

250

24,686,083

1,723,318

1,755,745

7.1%

Far North

21

1,637,034

149,135

196,235

12.0%

CBD

23

1,533,443

184,819

184,819

12.1%

Totals

1,982

231,153,608

19,566,171

20,572,011

8.9%

2Q 16

3Q 18

4Q 18

1Q 19

2Q 19

3Q 18

4Q 18

Absorption

1Q 19

2Q 19

3Q 18

4Q 18

1Q 19

Deliveries

2Q 19

Vacancy

VACANCY - OVERALL HOU 10.0% 8.9% 8.1%

8.5%

7.7%

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0%

0.4%

0.4%

1.0% 0.0%

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

4Q 17

Direct

1Q 18

2Q 18

3Q 18

4Q 18

Sublet

1Q 19

2Q 19

Total

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

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

53,714

221,394

1,082,550

131,876

Northwest

(402,475)

1,628,603

3,275,327

2,707,853

North

1,588,239

2,146,409

5,824,925

1,490,381

Near East

(287,733)

0

702,295

804,272

Port

2,718,308

2,839,934

4,698,253

909,650

South

(456,617)

0

0

262,652

25,000,000

Southwest

105,372

906,980

3,057,857

473,164

20,000,000

Far North

4,612

0

0

20,055

15,000,000

CBD

33,000

0

0

13,586

10,000,000

Totals

3,298,546

7,893,369

18,641,207

6,870,511

5,000,000

Market

5,000,000 4,000,000 3,000,000

Far West/Katy

Source: CoStar

2,000,000 1,000,000 0 2Q 16

3Q 18

4Q 18

1Q 19

2Q 19

3Q 18

1Q 19

Total Net

2Q 19

3Q 18

4Q 18

1Q 19

2Q 19

Leasing Activity

CONSTRUCTION - OVERALL HOU

0 2Q 16

3Q 18

4Q 18

1Q 19

2Q 19

3Q 18

Delivered Inventory

8

4Q 18

4Q 18

1Q 19

2Q 19

3Q 18

4Q 18

Under Construction

1Q 19

2Q 19


SUBMARKET INTELLIGENCE FAR WEST & KATY

VITAL STATS BROOKSHIRE

KATY

14.0% 1,300,000 12.0% 1,100,000

12,908,359 SF

10.0%

900,000

700,000

8.0%

500,000 6.0% 300,000

HLC OUTLOOK The Far West/Katy Houston industrial submarket is the smallest of the seven major submarkets, with only 13M SF of product. Geographically, the submarket follows along Interstate 10 stretching 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, 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 United States cities, respectively) make it an attractive location for new regional e-commerce distribution centers. Vacancy ticked slightly upward from 5.6% to 6.1% in 2Q. One of the big stories is the owner-user activity with both Costco and Medline electing to construct new large distribution centers along I-10. There are a handful of speculative projects expected to come online in 2019, so it will be important to track absorption moving forward.

NEW DEVELOPMENTS • Costco – a 548,519 SF project • Grand Parkway Commerce Center – a 371,900 SF project with First Industrial

LARGE EXISTING VACANCIES • 28420 West Ten Boulevard – 238K SF • 22370 Merchants Way – 81,939 SF • 1325 S Creek Drive – 80,555 SF •

4.0%

100,000

2.0%

(100,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

22,234

31,480

66,105

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.1%

5.6%

2.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

97,919

33,957

322,291

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,082,550

993,870

1,194,665

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

89,440

131,954

Source: CoStar

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SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

VITAL STATS

12.0%

HUMBLE

CYPRESS

1,100,000

11.0%

75,364,089 SF

10.0%

600,000

9.0% 100,000

8.0% 7.0%

-400,000 6.0% 5.0%

-900,000

4.0% 3.0%

-1,400,000 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

Deliveries

vs. Prev. Qtr

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

(553,610)

151,135

(1,002,859)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.5%

10.1%

8.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,429,360

1,278,493

1,451,048

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,869,308

2,591,388

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,044,073

525,119 Source: CoStar

10

HOUSTON

HLC OUTLOOK With more than 75M SF of existing product, the Northwest Houston industrial submarket is far and away the largest of the seven major submarkets we track. Geographically located north of Interstate 10, along the Highway 290 and West Sam Houston Tollway 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 delivery businesses, as well as businesses that service household needs such as plumbing, flooring, cabinet, and other various building supply-related items. Although land constraints are increasingly becoming a factor for developers to consider, new speculative construction continues to occur in Northwest Houston. Currently, there is approximately 3M SF of speculative construction either taking place or capitalized and soon to break ground in the Northwest submarket. Of the seven major submarkets, Northwest has the highest vacancy rate at 11.5%. If we were to include non-institutional product in our analysis, such as manufacturing buildings, that number would decrease significantly. However, there is no question that there are large blocks of vacancy within the institutional-quality industrial data set in Northwest Houston right now and that is what is causing the high vacancy factor. Absorption has historically averaged between 1 and 2M SF on an annual basis here.

NEW DEVELOPMENTS

3,275,327 584,530

KATY

• Grand National Business Park - a 1,286,740 SF project with Hines • Sam Houston Distribution Center – an 833,720 SF project with Transwestern • 249 Business Park – an 806,360 SF project with Panattoni • Highland Grove Business Park – a 458,280 SF project with Crow Holdings • Carson 249 Building – a 194,369 SF project with Carson Companies

• 290 Northwest Business Center – a 136,651 SF project with Molto Properties

LARGE EXISTING VACANCIES • • • •

10620 Telge Road – 401,753 SF 9800 Derrington Road – 368,467 SF 4414 Hollister Road – 234,215 SF 10610 Telge Road – 203,060 SF


SUBMARKET INTELLIGENCE NORTH HOUSTON

TOMBALL

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

VITAL STATS

HUMBLE

LAKE HOUSTON

17 .0% 16.0%

32,147,490 SF

1,600,000

15.0% 14.0% 13.0%

HOUSTON

1,100,000

12.0%

HLC OUTLOOK

11.0%

The North Houston industrial submarket is currently home to approximately 32M SF of existing product and almost 6M SF of product under construction. Put another way, right now, new construction equals 18.6% of the entire submarket’s existing square footage. The last time we approached that type of ratio was in 2013 when new construction equaled approximately 15% of the total submarket supply. At that time, the North was home to only around 20M SF total. Although the numbers above seem alarming, it should be noted that the vacancy factor in the North is much lower than its neighbor, the Northwest. It currently sits at 8.3% while Northwest is at 11.5%. This is significant because these two submarkets compete head-tohead for tenants on a regular basis. Furthermore, YTD net absorption has been extremely positive in the North submarket at more than 1.5M SF so far. Location-wise, the North submarket is defined as the area between Veterans Memorial Drive to the west and East Sam Houston Tollway to the east, and moving north from Loop 610 all the way to Montgomery County. Generation Park, McCord Development’s new master-planned business park, could start to see more industrial development in the near future. At this time, IKEA is the only large industrial player in that part of Houston, although there are two smaller speculative projects under construction. IKEA expects to have more than 1M SF of new distribution space built here within the next 1-2 years.

NEW DEVELOPMENTS • Air 59 Logistics Center – a 685,400 SF project with Archway Property/ Ridgeline/USAA’s • Layne Crossing – a 529,034 SF project with Crow Holdings • Cypress Preserve Logistics Center – a 515,780 SF project with Davis Commercial Development • Ella Logistics Center – a 504,595 SF project with Hines

600,000

10.0%

• Reeds Landing Business Park – a 363,182 SF project with Exeter Property Group

LARGE EXISTING VACANCIES

• 600 Fallbrook Drive – 250,681 SF • 121 Esplanade Boulevard – 244,550 SF • 2031 Cypress Station Drive – 225,600 SF

9.0% 100,000

8.0% 7.0% 6.0%

(400,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

Deliveries

vs. Prev. Qtr

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

1,635,837

(47,598)

849,988

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.3%

8.1%

9.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

678,180

812,201

1,826,757

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,984,945

5,450,173

1,718,900

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,826,409

320,000

601,426 Source: CoStar

11


SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

20,512,009 SF 300,000

8.0%

HOUSTON 7.0% 200,000 6.0% SHIP CHANNEL

100,000 5.0%

4.0%

0 PASADENA

MEDICAL CENTER

3.0% (100,000) 2.0% (200,000) 1.0%

0.0%

(300,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

(238,963)

(48,770)

(78,437)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.4%

6.3%

5.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

620,169

184,103

513,681

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

702,295

702,295

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

Source: CoStar

12

HLC OUTLOOK The majority of institutional-grade product in the Near East Houston industrial submarket was constructed during the 1970s and 1980s. With limited new construction since that time, average product age in this submarket is one of the oldest in Houston. Historically, this was one the lowest priced submarkets and attracted price-sensitive users. This appealed to third-party logistics companies. Because this submarket also featured widespread rail infrastructure and had proximity to the Port, it was the preferred submarket for plastic resin re-packagers. This submarket has undergone significant changes over the last several years. Due to tight market conditions, rental rates have increased to historically high levels. While still a value option for tenants, compared to other Houston submarkets and to new construction, the discount is significantly less than what it once was. This has led several tenants to relocate to the Port submarket. Though rental rates for the newer product in the Port submarket are higher, those costs are partially offset by lower drayage expenses Submarket vacancy stood at a mere 3.1% only three years ago. During the subsequent 12 quarters, the submarket has posted positive absorption only three times with the remaining nine quarters registering negative absorption. Current vacancy stands at 7.4%. This is up significantly from 1Q 2019 when the vacancy rate was 6.3%. There are two new developments under construction which will add 702,295 SF of product. This, combined with current vacancies and upcoming move-outs such as Conn’s (353,910 SF), could present some challenges in the near-term.

NEW DEVELOPMENTS • Near East Distribution Center – a 176,201 SF project with Phelan-Bennett Development and Nuveen • Houston Tradeport – a 526,094 SF project with NorthPoint Development

LARGE EXISTING VACANCIES • • • •

8705 Citypark Loop – 191,603 SF 221 Portwall – 162,240 SF 8786 Wallisville – 137,368 SF 1040 Lockwood – 118,849 SF


SUBMARKET INTELLIGENCE PORT AREA

MONT BELVIEU

HOUSTON

40,244,178 SF

VITAL STATS

BAY TOWN

SHIP CHANNEL

GALLERIA

3,000,000

10.0% PASADENA

MEDICAL CENTER

9.0%

LA PORTE

2,500,000

HOBBY AIRPORT

8.0%

TRINITY BAY

PEARLAND

1,500,000

1,000,000

4.0%

The Houston Port industrial submarket is strategically located near the Port of Houston’s container terminals, extensive network of refineries and downstream chemical plants, and a widespread multi-modal transportation infrastructure, including rail. The submarket allows for quick access to both the Barbours Cut and the Bayport container terminals where inbound and outbound container shipments enter or exit the Houston market. The Port submarket is one of the younger submarkets in Houston with much of the stock constructed in the last 15 years, propelled by the opening of the Bayport Container Terminal. Drivers for this submarket include third party logistics providers, plastic resin re-packagers in particular, downstream energy service providers, and retail. Vacancy increased in 2Q to 6.7% as deliveries outpaced absorption. The robust new development pipeline in this submarket will continue to provide headwinds on vacancy in the near term. The availability rate, currently vacant plus product under construction, is well above 10%.

a 1.3M SF project with Principal • Cedar Port Logistics Center – a 644K SF project with Avera and AEW • Port 146 – a 140,400 SF project with Clay Development & Construction

6.0% 5.0%

HLC OUTLOOK

NEW DEVELOPMENTS • Bay Area Business Park Phase II –

2,000,000

7.0%

ELLINGTON AIRPORT

LARGE EXISTING VACANCIES • 4600 Underwood – 402,648 SF • 4300 Malone – 365,727 SF • 2851 E Pasadena Boulevard – 349,050 SF • 1770 East Freeway – 260,148 SF • 4100 Malone Drive – 233,190 SF • 4311 Malone Drive – 207,425 SF

3.0%

500,000

2.0% 0

1.0% 0.0%

(500,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

Deliveries

vs. Prev. Qtr

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

1,353,829

1,364,479

788,588

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.7%

5.8%

2.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

377,222

532,428

272,059

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,689,253

5,961,906

3,934,283

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,847,604

992,330

311,650 Source: CoStar

13


SUBMARKET INTELLIGENCE SOUTH HOUSTON

HOUSTON SHIP CHANNEL

GALLERIA

VITAL STATS

PASADENA

MEDICAL CENTER

8.0%

400,000

21,008,338 SF

300,000

HOBBY AIRPORT

200,000 6.0% 100,000

ELLINGTON AIRPORT MISSOURI CITY

0

PEARLAND

(100,000)

4.0%

(200,000) (300,000) 2.0%

(400,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

(360,313)

(96,304)

(32,821)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.7%

5.9%

4.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

136,112

126,540

266,467

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

38,500 Source: CoStar

14

HLC OUTLOOK The South Houston industrial 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 the Sam Houston Tollway. With more than 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 land-constrained. However, due to the lack of population growth relative to the western submarkets, there has not been a strong demand for new development in this area. At the close of 2Q 2019, vacancy was 7.7% percent in the South submarket.

LARGE EXISTING VACANCIES • 411 Brisbane Street – 345,100 SF • 750 Almeda Genoa Road – 125K SF • 3203 S Sam Houston Parkway E – 108K SF • 1903-1977 Tellepsen Drive – 72,319 SF • 3440 S Sam Houston Parkway E – 72,070 SF


SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

HOUSTON

24,686,083 SF GALLERIA

VITAL STATS

MEDICAL CENTER

1,200,000

10.0% 9.0% SUGAR LAND

1,000,000

8.0% 800,000

7.0% RICHMOND

MISSOURI CITY

6.0%

600,000

5.0%

HLC OUTLOOK The Southwest Houston industrial submarket encompasses most of Southwest Houston outside of Loop 610, stretching from the Westchase area to the north and all the way south to the cities of Stafford and Sugar Land located in Fort Bend County. The submarket has seen steady growth in new construction over the last several years and it continues to increase with new speculative projects breaking ground during 1Q and 2Q along the Sam Houston Tollway. The business-friendly local governments in Fort Bend County and the available Triple Freeport Tax Exemption are two big reasons why we have seen so much activity in 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 this region. Vacancy was 7.1% percent at the close of 2Q. This is due to several large, new construction deliveries. The storyline to watch will be how much of this new space is absorbed and how much is left on the market when the dust settles.

NEW DEVELOPMENTS • Southwest Commerce Center – a 477,355 SF project with Transwestern & Diamond • Boulevard Oaks Business Park – a 429,625 SF project with Hines • Waypoint Business Park – a 708,944 SF project with 4M Investments & Clarion • City Park Logistics Center – a 438,202 SF project with Logistics Property Company • Stafford Crossing – a 334,200 SF project with Transwestern & AEW

400,000

4.0%

• Sugar Land Distribution Center – a 315,892 SF project with Johnson Development

LARGE EXISTING VACANCIES

• 1111-1113 Gillingham – 266,663 SF • 12900 West Airport Boulevard – 229,561 SF • 9500 West Sam Houston Parkway – 97,401 SF • 1631 Gillingham Lane – 88,200 SF • 1601 Gillingham Lane – 76,050 SF • 12121 McLain Road – 54,340 SF

3.0%

200,000

2.0% 0 1.0% 0.0%

(200,000) 2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Absorption

Absorption

4Q 17

1Q 18

Deliveries

vs. Prev. Qtr

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Vacancy

vs. 12 Mths Ago

27,940

77,432

70,304

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.1%

3.7%

7.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

192,428

280,736

478,219

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,057,857

2,952,018

1,461,516

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

906,980

477,355

46,500 Source: CoStar

15


DALLAS

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

FORT WORTH

1200 Summit Avenue Suite 300 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017

www.holtlunsford.com

HOUSTON

11451 Katy Freeway Suite 300 Houston, Texas 77079 T 713.850.8500 F 713.850.8550