4Q 2019 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

4Q19 Property Pictured Above: Interwood Distribution Center | 14710 & 14720 John F Kennedy Boulevard | Houston, Texas 77032

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 2019

WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that 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 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 distribution warehouses.

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 in most other reports; but there are dozens of buildings that directly compete 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

3

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 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 34,636,791 SF

LAKE HOUSTON

NORTHWEST 76,394,627 SF MONT BELVIEU

NEAR EAST 20,835,861 SF BROOKSHIRE

KATY

HOUSTON

SOUTHWEST 25,637,815 SF

FAR WEST/KATY 13,687,246 SF

PORT AREA 41,542,942 SF

CBD 1,533,443 SF

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE HOBBY AIRPORT

SOUTH 21,116,464 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

4Q 2019 saw market-wide vacancy for distribution warehouses increase to 9.9% (according to CoStar data, the vacancy rate for “specialized industrial” - i.e. manufacturing - buildings in Houston at the close of 2019 was only 2.7%). Vacancy has not been this high in Houston since 2Q 2011. It should be noted, however, that between 2009 and 2011 the vacancy rate generally stayed above 10% market-wide.

The high vacancy rate is mainly due to the wave of new construction in the logistics sector. Almost 15M SF of new distribution space was delivered in 2019. Conversely, we only had 7.3M SF of net absorption. This is down from 8.8M SF of net absorption in 2018. Construction starts have slowed down a bit, with only 17.7M SF under construction at the end of 4Q 2019, compared to 20M at the beginning of the year. However, in order to prevent vacancy from reaching the double-digit mark we will need to see increased absorption in the first half of 2020. The good news is there are several large requirements in the market now and with Houston continuing to emerge as a true regional distribution hub we expect more retailers and businesses serving the ever-growing metro population to increase their distribution footprint in the coming months and years.

TRENDS & TRANSACTIONS KELLY LANDWERMEYER

JOHN KRUSE

Senior Vice President Houston Industrial Leasing klandwermeyer@hlhouston.com 713.602.3762

Senior Vice President Houston Industrial Leasing jkruse@hlhouston.com 713.602.3756

• The North and Port submarkets continue to outpace the rest of the market in both new construction and net absorption.

• A handful of large portfolio trades were either announced or reached the finish line in 4Q 2019 including Prologis’ purchases of Industrial Property Trust (IPT) and Liberty Property Trust, and Blackstone’s purchases of Global Logistics Properties (GLP) and Colony Capital.

• The Near East submarket saw its first delivery of a new speculative distribution warehouse in several years with the completion of NorthPoint Development’s Houston Tradeport Building 3, a 526,094SF cross-dock located at 8230 Stedman Street.

• East Belt Business Park, a four (4) building, 350K SF business park located in the Port submarket, was purchased by TA Realty from Morgan Stanley.

Absorption

CRAIG BEAN Senior Vice President Houston Industrial Leasing cbean@hlhouston.com 713.602.3752

vs. Prev. Qtr

vs. 12 Mths Ago

2,145,065

1,198,842

2,320,063

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.9%

9.4%

7.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

3,443,474

5,211,543

5,600,801

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

18,077,808

18,066,866

11,027,569

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,769,870

3,587,210

2,140,492

7

HLC HOU FACTS & FIGURES

Market

Existing Inventory

Vacancy

OVERALL HOU

11.0%

6,000,000

10.0%

5,000,000

9.0%

4,000,000

8.0%

3,000,000

7.0%

2,000,000

6.0%

1,000,000

5.0%

0

4.0%

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

Far West/Katy

67

13,687,246

423,050

471,254

3.4%

Northwest

792

76,394,627

6,940,848

7,407,954

9.7%

North

298

34,636,791

5,161,316

5,306,580

15.3%

Near East

170

20,835,861

1,397,187

1,529,233

7.3%

Port

145

41,542,942

3,661,664

3,996,081

9.6%

South

223

21,116,464

1,401,329

1,429,044

6.8%

Southwest

257

25,637,815

2,349,047

2,408,332

9.4%

Far North

21

1,637,034

178,420

208,420

12.7%

CBD

23

1,533,443

207,819

207,819

13.6%

Totals

1,996

237,022,223

21,720,680

22,964,717

9.9%

(1,000,000) 4Q 16

1Q 17

2Q 3Q 17 17 Absorption

4Q 17

1Q 18

2Q 3Q 4Q 18 18 18 Deliveries

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

VACANCY - OVERALL HOU 12.0% 9.9% 9.4%

7.5% 7.1%

10.0% 8.0% 6.0% 4.0% 2.0%

0.5%

0.4%

0.0% 4Q 16

1Q 17

2Q 17 Direct

3Q 17

4Q 17

1Q 18

2Q 3Q 18 18 Sublet

4Q 18

1Q 19

2Q 19

3Q 19 Total

4Q 19

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

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West/Katy

922,322

769,913

2,025,380

939,077

Northwest

1,254,413

2,113,044

3,749,310

6,292,832

North

2,085,758

5,248,492

4,740,859

2,762,764

194,583

526,094

176,201

2,158,339

Port

2,777,086

4,445,585

4,605,246

1,700,557

South

(334,533)

0

0

1,180,445

25,000,000

Southwest

354,038

1,853,018

2,428,213

1,447,861

20,000,000

Far North

(7,573)

0

0

22,905

15,000,000

CBD

10,000

0

0

84,151

10,000,000

Totals

7,256,094

14,956,146

17,725,209

16,588,931

5,000,000

Market

Near East

Source: CoStar

8

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 4Q 16

1Q 17

2Q 17

3Q 4Q 17 17 Total Net

1Q 18

2Q 18

3Q 18

4Q 1Q 2Q 18 19 19 Leasing Activity

3Q 19

4Q 19

CONSTRUCTION - OVERALL HOU

0 4Q 16

1Q 17

2Q 17

3Q 4Q 1Q 2Q 17 17 18 18 Delivered Inventory

3Q 18

4Q 1Q 2Q 18 19 19 Under Construction

3Q 19

4Q 19

SUBMARKET INTELLIGENCE FAR WEST & KATY

VITAL STATS

KATY

BROOKSHIRE

14.0%

13,687,246 SF

1,500,000 1,300,000

12.0%

1,100,000 10.0%

900,000

8.0%

HLC OUTLOOK

6.0%

The Far West 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, Katy and the surrounding communities. Additionally, the submarket’s location along Interstate 10, and proximity to San Antonio and Austin make it an attractive location for new regional e-commerce distribution centers. Prominent tenants and users in this submarket include Medline, Goya Foods, Rooms-to-Go, Amazon, Costco, Academy Sports + Outdoors, and Igloo.

4.0%

Vacancy decreased from 5.8% to 3.4% in 4Q 2019 primarily due to Amazon leasing 238K SF at 28420 West Ten Boulevard in West Ten Business Park. Vacancy is expected to increase in future quarters with delivery of new developments currently under construction. It will be important to watch whether the larger tenants and users in this submarket decide on a build-to-suit to accommodate future growth versus leasing additional space in speculative buildings.

NOTABLE TRANSACTIONS • Stream Realty Partners closed on 300 acres with Houston-based McMillian Interests in Brookshire. The site is located at the northwest corner of Interstate 10 and Woods Road in Waller County. The park, named Empire West Business Park, will be constructed in phases with Phase I consisting of two 150K SF buildings and a larger 750K SF building.

• Ross Dress for Less is currently under construction for a new distribution center totaling 2M SF at 31207 Kingsland Boulevard in Waller County. The distribution center is expected to open in 2021.

NEW DEVELOPMENTS • Clay 99 – a 433,200 SF project with Duke Realty • Grand Parkway Commerce Center – a 371,900 SF project with First Industrial • Cane Island Business Center – a 277,400 SF project with Insite Realty & Principal

700,000 500,000 300,000 100,000

2.0%

(100,000) 4Q 16

Absorption

1Q 17

2Q 3Q 17 17 Absorption

4Q 17

1Q 18

2Q 18

3Q 4Q 18 18 Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

vs. 12 Mths Ago

835,988

32,630

850,388

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.4%

5.8%

4.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

248,050

545,544

111,261

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,025,380

1,082,550

327,440

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

548,519

-

520,880 Source: CoStar

LARGE EXISTING VACANCIES • 1039 Schlipf Road – 89,440 SF • 22370 Merchants Way – 45,835 SF

9

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

VITAL STATS

12.0%

HUMBLE

CYPRESS

1,100,000

11.0% 10.0%

76,394,627 SF

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 4Q 16

1Q 2Q 3Q 17 17 17 Absorption

Absorption

4Q 17

1Q 18

2Q 3Q 18 18 Deliveries

vs. Prev. Qtr

4Q 18

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

vs. 12 Mths Ago

1,114,601

587,061

630,083

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.7%

11.2%

8.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,126,140

1,833,450

2,266,965

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,749,310

3,608,910

1,937,791

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

484,441

124,915 Source: CoStar

10

KATY

HOUSTON

HLC OUTLOOK With more than 76M SF of existing distribution product, the Northwest submarket is far and away the largest of the seven major submarkets in Houston.

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 distribution tenants needing to be close to the regional population center. Businesses centered around e-commerce, building supplies, and household services such as plumbing and HVAC repair are all extremely common in Northwest Houston.

The vacancy rate in the Northwest submarket was 9.7% at the close of 4Q 2019.

This is down from 11.2% at the end of 3Q 2019. This decrease can largely be attributed to positive absorption of just over 1.1M SF during 4Q. With almost 3.8M SF of new product under construction, that trend will need to continue into 2020 in order for vacancy to stay in single digits. With that being said, looking forward, we remain bullish on the Northwest submarket due to the Highway 290 corridor continuing to experience seemingly unchecked population growth.

NEW DEVELOPMENTS • Grand National Business Park - a 1,286,740 SF project with Hines • Sam Houston Distribution Center - a 833,720 SF project with Transwestern • 249 Business Park - a 806,360 SF project with Panattoni • Northwest Crossing - a 277,768 SF project with East Group • Telge 290 Logistics Center - a 207,635 SF project with USAA, Archway, and Ridgeline • Windfern Northwest Distribution Center a 179,200 SF project with Phelan-Bennett Development and GID

LARGE EXISTING VACANCIES • • • • •

9800 Derrington Road - 368,467 SF 3480 W 11th Street - 279,400 SF 4414 Hollister Road – 234,215 SF 10610 Telge Road – 203,060 SF 12202 Cutten Road – 194,602 SF

SUBMARKET INTELLIGENCE NORTH HOUSTON

TOMBALL

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

VITAL STATS

LAKE HOUSTON

18.0%

2,100,000

34,636,791 SF

16.0%

HLC OUTLOOK

Just over 1.7M SF of new distribution product was delivered in the North submarket during 4Q 2019. Absorption lagged behind significantly at 383,476 SF causing vacancy to jump up to more than 15%. Still, year-to-date absorption was relatively strong at 2.1M SF, ranking second behind only the Port submarket market-wide.

The jump in vacancy is largely due to a handful of large speculative developments reaching completion and not being absorbed yet. For example, Avera’s 242,760 SF Park 8, IDI Logistics’ 351,400 SF North Houston Logistics Center Building G, and Davis Commercial Development’s two (2) building, 516K SF Cypress Preserve Logistics Center were all delivered in 4Q 2019 with none of the space pre-leased. Additionally, USAA’s 685,400 SF Air 59 Logistics Center and Duke’s 337,700 SF Point North Three were delivered in 3Q 2019 and have yet to be absorbed as of the end of 2019. Vacancy will stabilize as these large blocks of space are leased.

Even with all the new, un-leased space hitting the ground, leasing activity was relatively strong to close out 2019 with approximately 30 lease deals completed in 4Q 2019. However, the average deal size was only around 22K SF. This leads us to hypothesize that the projects able to accommodate smaller tenants (20K to 50K SF), and those that have the flexibility to offer higher office finish, have a slightly better chance at achieving success in this submarket.

NEW DEVELOPMENTS • Layne Crossing – a 529,034 SF project with Crow Holdings • Kennedy Greens Distribution Center - a 524,160 SF project with Clay Development & Construction • Air 59 Logistics Center - a 509,600 SF project with Hunt Southwest • Interwood Distribution Center - a 341,692 SF project with Frontier Equity and GID • Parc 59 - a 279,500 SF project with Jackson Shaw and Thackery • Ella West Crossing - a 221,393 SF project with USAA and Seefried • Presidents Park 5 - a 167,781 SF project with Prologis

LARGE EXISTING VACANCIES • • • •

1,600,000

HOUSTON

Air 59 Logistics Center - 685,400 SF Cypress Preserve Logistics Center (Buildings 1 & 2) - 516K SF 30 Esplanade Boulevard (North Houston Logistics Center) - 351,400 SF 8221 Volta Drive (Point North Three) - 337,700 SF

14.0% 1,100,000 12.0% 600,000 10.0% 100,000

8.0% 6.0%

(400,000) 4Q 16

Absorption

1Q 2Q 3Q 17 17 17 Absorption

4Q 17

1Q 18

2Q 3Q 18 18 Deliveries

vs. Prev. Qtr

4Q 18

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

vs. 12 Mths Ago

383,476

83,968

(61,599)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

15.3%

12.1%

7.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

588,440

668,551

971,409

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,740,859

5,227,530

2,835,509

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,714,369

1,387,714

Source: CoStar

• 11945 North Freeway (Park 8) - 242,760 SF 11

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

20,835,861 SF

VITAL STATS 8.0%

600,000

7.0%

500,000

HOUSTON

400,000

6.0%

SHIP CHANNEL

300,000

5.0%

200,000

4.0%

100,000 3.0%

0

2.0%

(100,000)

1.0%

(200,000)

0.0%

(300,000) 4Q 16

1Q 17

2Q 17

3Q 17

4Q 17

1Q 18

Absorption

Absorption

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Deliveries

vs. Prev. Qtr

3Q 19

4Q 19

Vacancy

vs. 12 Mths Ago

102,906

106,546

58,969

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.3%

5.4%

5.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

298,134

623,107

216,711

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

176,201

702,295

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

526,094

-

Source: CoStar

12

PASADENA

MEDICAL CENTER

HLC OUTLOOK The majority of institutional-grade product in the Near East 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 has been the lowest priced submarket in Houston and has attracted price-sensitive users accordingly. In particular, this submarket has appealed to third-party logistics companies. Its widespread rail infrastructure and proximity to the Port, has made it the preferred submarket for plastic resin repackagers, though that has diminished in recent years in favor of the Port submarket.

This submarket has evolved significantly since 2015. Due to tight market conditions with vacancy rates under 3%, second generation rents have increased to historically high levels. While still a value option for tenants, the discount compared to other Houston submarkets and to new construction is significantly less than what it was historically. This led many tenants, particularly those Port-related, to vacate the Near East submarket in favor of alternative submarkets, most notably the Port. Though rents for newer product in the Port submarket are higher, those costs are offset by lower drayage expenses and more efficient footprints.

Submarket vacancy stood at a mere 3.3% four years ago. Since that time, the submarket has experienced more quarters with negative absorption than positive. 4Q 2019 had just over 100K SF of positive absorption but with the delivery of 526,094 SF of new spec development at Houston Tradeport, the submarket vacancy increased to 7.3%.

Given the relatively small size of the submarket, the vacancy rate is expected to be lumpy over the course of 2020. Near East Distribution Center will deliver 176,201 SF of new spec development in January of 2020. There are known move-outs that will occur during the year including Conn’s 480,956 SF on Market Street. Lastly, it remains to be seen whether we will continue to see the flight to quality that the Near East has experienced over the past four years.

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

LARGE EXISTING VACANCIES • • • •

8230 Stedman Steet - 526,094 SF 8786 Wallisville Road - 137,368 SF 4545 Eastpark Drive - 81,295 SF 7350 Roundhouse Lane - 69,680 SF

SUBMARKET INTELLIGENCE PORT AREA

MONT BELVIEU

HOUSTON

41,542,942 SF

VITAL STATS

BAY TOWN

SHIP CHANNEL

GALLERIA

10.0%

PASADENA

MEDICAL CENTER

3,000,000

LA PORTE

9.0%

HOBBY AIRPORT

2,500,000

8.0% ELLINGTON AIRPORT TRINITY BAY

HLC OUTLOOK

For the second consecutive quarter, the vacancy rate increased sharply. This is largely due to the submarket experiencing negative absorption for the first time in more than three years. Coupled with the delivery of more than 500K SF of new spec product, the vacancy rate increased from 7.7% to 9.6% to close out the year. This is the highest vacancy rate in the past four years by a substantial margin. New spec developments still in the pipeline will continue to challenge this submarket in the near term. Fortunately, the Port submarket has delivered strong absorption recently, averaging more than 3.6M SF annually for the past three years.

LARGE EXISTING VACANCIES • 4600 Underwood Road – 402,648 SF • Cedar Port Building 4 - 352,559 SF • 2851 E Pasadena Boulevard – 349,050 SF • 13031 Bay Area Boulevard – 296,400 SF • 4121 Malone Drive – 274,479 SF • 1770 East Freeway – 260,148 SF

1,000,000

4.0% 3.0%

500,000

2.0%

0

1.0% 0.0%

(500,000) 4Q 16

The Port submarket is youthful compared to other submarkets with much of the stock constructed in the last 15 years and propelled by the opening of the Bayport Container Terminal. Drivers for the submarket include third party logistics providers (plastic resin repackagers in particular), downstream energy service providers, and retail (ex. Walmart, Home Depot, IKEA).

• Bay Area Business Park Phase III – a 1.3M SF project with Stream and Principal • Cedar Port Logistics – a 644K SF project with Avera and AEW • Bayport South – a 642K SF project with Panattoni and MetLife

1,500,000

5.0%

The Port submarket is strategically located in close proximity to 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 Bayport container terminals where container shipments enter and exit the Houston market.

NEW DEVELOPMENTS

2,000,000

7.0% 6.0%

PEARLAND

Absorption

1Q 2Q 3Q 17 17 17 Absorption

4Q 17

1Q 18

2Q 3Q 4Q 18 18 18 Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

vs. 12 Mths Ago

(312,268)

271,046

481,663

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.6%

7.7%

6.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

160,527

529,380

1,163,431

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,605,246

4,308,424

3,694,819

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

516,944

1,088,707

1,494,697 Source: CoStar

13

SUBMARKET INTELLIGENCE SOUTH HOUSTON

HOUSTON SHIP CHANNEL

GALLERIA

VITAL STATS

PASADENA

MEDICAL CENTER

8.0%

21,116,464 SF

200,000

HOBBY AIRPORT

100,000 6.0%

HLC OUTLOOK

0

ELLINGTON AIRPORT MISSOURI CITY

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. With more than 21M SF of product, the South submarket is the fifth smallest of the nine major submarkets HLC tracks in Houston. Large portions of this area have not yet been developed, 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.

PEARLAND

(100,000) 4.0%

(200,000) (300,000)

2.0%

(400,000) 4Q 16

Absorption

1Q 2Q 3Q 17 17 17 Absorption

4Q 17

1Q 18

2Q 3Q 18 18 Deliveries

vs. Prev. Qtr

4Q 18

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

At the close of 4Q 2019, vacancy was 6.8% in the South submarket which was a slight decrease from 3Q. Absorption for 4Q 2019 was positive at 94,253 SF. However, the year-to-date absorption is negative (334,533 SF) due to several key tenants vacating space, such as Grocers Supply which relocated to the North Submarket.

vs. 12 Mths Ago

94,253

27,831

(126,819)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.8%

7.4%

5.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

548,732

358,879

150,953

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

Source: CoStar

14

NOTABLE TRANSACTIONS • Summit Real Estate Group acquired Corporate Center Fannin in an off-market transaction from Houston based Warehouse Associates. The project is located at 10001 Fannin Street. Corporate Center Fannin is comprised of Fannin I, a 219K SF cross dock warehouse, and Fannin II, a new 152K SF building.

• DRA Advisors sold Willowbend Business Park to Angelo, Gordon & Co. and High Street Realty. The sale included eight (8) industrial and flex buildings located at 3605-361 Willowbend Boulevard totaling 654,352 SF. The project was 94% occupied at the time of sale.

• Houston based Investment & Development Ventures LLC (IDV) acquired 214 acres along Beltway 8, just east of Highway 288. Phase I of their new development is under construction and is expected to deliver 4Q 2020. It will total 405K SF including a 274K SF cross dock and 130K SF side-load building.

LARGE EXISTING VACANCIES • • • • •

750 Almeda Genoa - 230,882 SF 5055 South Loop Freeway - 223,400 SF 3110 Corder Street - 109,500 SF 7449 E Orem Drive - 100K SF 9450 E Point Drive - 98,813 SF

SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

HOUSTON

25,637,815 SF GALLERIA

VITAL STATS

MEDICAL CENTER

10.0%

1,200,000

9.0% SUGAR LAND

1,000,000

8.0%

800,000

7.0% RICHMOND

MISSOURI CITY

6.0%

600,000

5.0%

HLC OUTLOOK

3.0%

The Southwest submarket encompasses most of Southwest Houston outside of Loop 610, stretching from the Westchase area to the north, 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. The business-friendly local governments in Fort Bend County and available Triple Freeport Tax Exemption are two big reasons why we’ve 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 9.4% at the close of 4Q 2019. The significant increase in vacancy is largely due to 1,853,018 SF of new construction deliveries during 2Q, 3Q and 4Q. The storyline to watch will be how much of this new construction supply will be absorbed throughout 2020.

NEW DEVELOPMENTS • Waypoint Business Park – a 708,944 SF project with 4M Investments and Clarion • City Park Logistics Center – a 438,202 SF project with Logistics Property Co. • Stafford Crossing – a 334,200 SF project with Transwestern and AEW • Sugar Land Distribution Center – a 315,892 SF project with Johnson Development

400,000

4.0%

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

LARGE EXISTING VACANCIES • • • •

611 Cravens Road – 477,355 SF 1111-1113 Gillingham – 266,663 SF 631 Buffalo Lakes Drive – 196,769 SF 13323 South Gessner Road – 141,440 SF

200,000

2.0%

0

1.0% 0.0%

(200,000) 4Q 16

Absorption

1Q 2Q 3Q 17 17 17 Absorption

4Q 17

1Q 18

2Q 3Q 4Q 18 18 18 Deliveries

vs. Prev. Qtr

1Q 19

2Q 19

3Q 4Q 19 19 Vacancy

vs. 12 Mths Ago

(56,321)

210,908

465,437

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.4%

8.6%

3.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

458,835

351,025

700,871

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,428,213

3,137,157

906,980

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

169,641

626,348

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