1Q 2021 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

1Q2021 Property Pictured Above: West by Northwest Industrial Park | 5910 West By Northwest Boulevard, Houston, Texas 77040

1

HOUSTON INDUSTRIAL MARKET BRIEF 1Q 2021

WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that customer service and market knowledge are two of the cornerstones to delivering great service to our clients in the real estate industry, and one way we strive to provide both is through our quarterly market updates.

Our Houston industrial market report stands apart because we track and analyze data unlike most others. For example, our report contains only statistics for institutional-grade distribution and flex buildings. While we recognize that specialized manufacturing buildings play an important role in Houston’s industrial market, we believe they should be tracked separately from typical institutional-grade distribution and flex 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 Interstate. 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.

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HOUSTON INDUSTRIAL MARKET BRIEF 1Q 2021

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

4

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

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

HOUSTON

15,456,933 3,977,694

CONROE

HLC SUBMARKET COVERAGE

MAGNOLIA

THE WOODLANDS

NEW CANEY

FAR NORTH 4,806,752 SF

PRAIRIE VIEW

TOMBALL SPRING

DAYTON

NORTH 52,254,155 SF CYPRESS

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

NORTHWEST 105,502,381 SF

LAKE HOUSTON

PORT AREA 51,798,701 SF

MONT BELVIEU

BROOKSHIRE

NEAR EAST 25,044,850 SF

KATY

HOUSTON BAY TOWN

FAR WEST 23,290,911 SF

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

SOUTHWEST 47,352,771 SF SUGAR LAND

SOUTH 24,343,818 SF

PASADENA LA PORTE HOBBY AIRPORT

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

RICHMOND

5

ELLINGTON AIRPORT TRINITY BAY

HLC HOU

INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK

INDUSTRIAL MARKET EXPERTS

Market-wide vacancy for distribution and flex product stood at 12.2% at the close of 1Q 2021. Net absorption during 1Q 2021 was 1,636,896 SF and new deliveries came in at 3,239,354 SF, the lowest single-quarter total since 1Q 2019. Total leasing activity was strong at 7,151,406 SF. 2020 saw record absorption for the Houston market and, although the sub-2M SF absorption number is not quite on track with last year’s pace, all signs point to 2021 being another above-average year in Houston. We expect that vacancy will begin to trend downward in the coming quarters as leasing activity remains strong.

TRENDS & TRANSACTIONS • During the 1Q 2021, Houston saw an uptick of third-party logistics and last-mile CRAIG BEAN

JOHN KRUSE

Managing Principal Houston Industrial Leasing cbean@holtlunsford.com 713.602.3752

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

delivery companies that are new to the market leasing space in first generation buildings. 4XP Express leased 347,730 SF at Boulevard Oaks Business Park, Awesung leased 239,124 SF at Southwest Commerce Center, and Cart.com leased 108,186 SF at Northwest Crossing, just to name a few.

• The Southwest submarket saw 1,438,475 SF of leasing activity in the first quarter,

marking the third quarter in a row the submarket has experienced more than 1M SF of leasing activity. Several of the deals completed in the first quarter have 2Q or 3Q commencement dates, which will help to decrease the vacancy factor from its current 10.2% at the close of 1Q 2021.

• The Port submarket experienced 420,402 SF of leasing activity and 1,028,722 SF of

net absorption due to a host of deals signed in 2020 commencing during 1Q 2021.

On the new construction front, Cedar Port Trade Center, which is being developed

by Hunt Southwest and is the first ever 1M SF spec building to be built in Houston, is scheduled to be complete in 2Q 2021 and is located in Baytown’s Cedar Port Industrial Park.

Absorption

KELLY LANDWERMEYER

CARTER HOLMES

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

Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751

6

vs. Prev. Qtr

vs. 12 Mths Ago

1,636,896

5,778,299

2,854,151

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.2%

11.9%

10.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

7,151,406

8,047,565

7,089,241

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

14,695,484

11,068,452

18,708,649

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,239,354

8,350,715

8,754,664

HLC HOU FACTS & FIGURES

OVERALL HOU

13.0%

9,000,000

12.0%

8,000,000

11.0%

7,000,000 6,000,000

10.0%

5,000,000

9.0%

4,000,000 8.0%

3,000,000

7.0%

Market

Existing Inventory

Vacancy

1,000,000

5.0%

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

Far West

146

23,290,911

2,820,936

2,820,936

12.1%

Northwest

1,311

105,502,381

10,869,358

11,350,146

10.8%

North

550

52,254,155

10,678,468

10,698,284

20.5%

Far North

41

4,806,752

157,621

157,621

3.3%

Near East

238

25,044,850

2,775,374

2,845,426

11.4%

Port

278

51,798,701

6,426,012

6,587,155

12.7%

South

352

24,343,818

1,523,282

1,609,437

6.6%

Southwest

832

47,352,771

4,771,468

4,830,271

10.2%

3,748

334,394,339

40,022,519

40,899,276

12.2%

Totals

2,000,000

6.0%

0

4.0%

(1,000,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Deliveries

1Q 21

Vacancy

VACANCY - OVERALL HOU 14.0% 12.2% 12.0% 12.0% 10.0% 8.0% 6.0% 6.0% 5.7% 4.0% 2.0% 0.4%

0.3% 0.0%

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Direct

4Q 19

1Q 20

2Q 20

3Q 20

Sublet

4Q 20

1Q 21

Total

ABSORPTION - OVERALL HOU 9,000,000

8,000,000 7,000,000 6,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West

141,030

1,036,057

1,415,861

892,521

Northwest

68,459

134,800

1,961,661

2,441,592

North

170,421

988,707

1,043,600

1,199,289

Far North

415,442

402,300

2,112,000

24,774

Near East

(599,720)

0

-

503,721

Port

1,028,722

436,046

3,029,157

420,402

25,000,000

South

18,822

112,000

587,911

172,175

20,000,000

Southwest

393,720

129,444

4,545,294

1,496,932

15,000,000

1,636,896

3,239,354

14,695,484

7,151,406

Market

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000)

Totals

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Total Net

2Q 20

3Q 20

4Q 20

1Q 21

Leasing Activity

CONSTRUCTION - OVERALL HOU

10,000,000

5,000,000

Source: CoStar

0 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Delivered Inventory

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Under Construction

7

SUBMARKET INTELLIGENCE FAR WEST

VITAL STATS

BROOKSHIRE

14.0%

KATY

4,400,000 3,900,000

12.0%

23,290,911 SF

3,400,000 10.0% 2,900,000 8.0%

2,400,000 1,900,000

6.0%

1,400,000

4.0%

900,000 2.0%

400,000

0.0%

(100,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Deliveries

vs. Prev. Qtr

1Q 21

Vacancy

vs. 12 Mths Ago

141,030

4,104,482

110,682

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.1%

8.7%

9.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

892,521

80,901

926,109

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,415,861

1,555,288

5,091,671

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,036,057

4,386,701

1,147,050

SUGAR LAND

The Far West submarket is located west along Interstate 10 stretching west from Highway 6 past Brookshire encompassing areas in Harris, Fort Bend, and Waller counties. The submarket benefits from immediate access to Interstate 10, convenient city-wide connectivity via the Grand Parkway, continued population growth in West Houston and Katy, and the ability to serve multiple major cities in Texas such as Houston, San Antonio, and Austin from a single location. As Houston’s population continues to grow west, the submarket’s strategic location will make it an attractive option for new regional e-commerce distribution centers. Prominent tenants and users in this submarket include Medline, Goya Foods, Rooms-to-Go, Amazon, Costco, Bel Furniture, Academy Sports + Outdoors, and Igloo.

Vacancy increased to 12.1% in 1Q 2021 from 8.6% in 4Q 2020. The Far West submarket experienced a modest positive 132,030 SF of absorption during 1Q 2021. This small amount is direct contrast to the record positive 4,104,166 SF of absorption during 4Q 2020 due to substantial tenants such as Ross Dress for Less (2.16M SF), Medline (1.3M SF), and Amazon (805K SF) taking occupancy of completed design-builds that occurred during 4Q 2020. The supply of new construction continues to increase with 1,036,057 SF of deliveries during 1Q 2021 with the completion of Phase 1 at Empire West Business Park. The 1,287,461 SF under construction at the end of the 1Q 2021 is represented by several larger projects such as The Upland Twinwood DC 1 and Jordan Distribution Center. The submarket continues to attract both larger owner-user and design-build tenants.

NEW DEVELOPMENTS • Empire West Business Park | Phase 1 – a 1,036,057 SF development with Stream Realty • The Uplands Twinwood DC 1 – a 737,630 SF development with Clay Development/Exeter • Jordan Ranch Distribution Center – a 498,231 SF development with Phelan Bennett/WPT REIT • Stonelake West Ten – a 195,974 SF development with Stonelake Capital Partners • 7737 Cherokee Road – a 184,205 SF development with IDV/Alto Real Estate Funds

LARGE EXISTING VACANCIES Source: CoStar

8

HLC OUTLOOK

• • • • • •

Empire West 3 – 750,775 SF Clay 99 Building Five – 433,200 SF Pederson Distribution Center – 205,200 SF Cane Island Business Center 197,400 SF First Grand Parkway Building 1 – 173,045 SF Empire West 1 – 163,144 SF

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

TOMBALL

VITAL STATS

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

14.0%

2,500,000

105,502,381 SF

2,000,000 12.0% 1,500,000

BROOKSHIRE

KATY

HOUSTON

10.0%

1,000,000

GALLERIA

500,000 8.0% 0

HLC OUTLOOK The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 105M SF of product. Geographically located north of Interstate 10 along the Highway 290 and West Sam Houston Parkway corridors, the submarket has historically offered a “Main and Main” location for distribution tenants needing to be close to the regional population center. New development has continued to creep further out along Highway 290 in recent years due to the lack of available land sites near Beltway 8.

The vacancy rate in the Northwest submarket stood at 10.8% at the close of 1Q 2021 which is a slight increase from the previous quarter’s 10.7% number. The submarket experienced leasing activity of 2,243,604 SF, and only saw one delivery equaling 134,800 SF. Currently, we are tracking 1,961,661 SF of product under construction with most of that being speculative.

NEW DEVELOPMENTS • Nexus Park NW – a four (4) building 518,608 SF project with Jackson Shaw • Seton Lake Logistics Center – a 259,654 SF development with Trammell Crow • Amazon BTS at Republic Business Center – a 141,360 SF development with National Property Holdings • Home Depot BTS at Republic Business Center – a 657K SF development with National Property Holdings

LARGE EXISTING VACANCIES • • • • •

Sam Houston Distribution Center | Building 2 – 494,800 SF 7301-7401 Security Way – 296,839 SF 3408 W 11th Street – 279,400 SF 4414 Hollister Road – 234,215 SF Telge 290 Logistics Center – 207,635 SF

6.0%

-500,000 -1,000,000

4.0% -1,500,000 2.0%

-2,000,000 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

Absorption

3Q 19

4Q 19

Deliveries

vs. Prev. Qtr

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Vacancy

vs. 12 Mths Ago

68,459

58,077

277,388

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.8%

10.7%

10.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,441,592

2,293,954

2,529,281

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,961,661

752,754

2,354,074

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

134,800

180,695

2,081,959 Source: CoStar

9

SUBMARKET INTELLIGENCE NORTH HOUSTON

VITAL STATS

SPRING

23.0% 21.0%

2,600,000

19.0%

GEORGE BUSH INTERCONTINENTAL AIRPORT

2,100,000

52,254,155 SF

17.0%

13.0%

1,100,000

11.0%

600,000

9.0% 100,000

7.0% 5.0%

(400,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

Deliveries

vs. Prev. Qtr

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Vacancy

vs. 12 Mths Ago

170,421

(133,365)

689,477

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

20.5%

19.3%

14.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,199,289

971,117

832,201

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

988,707

2,293,707

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,787,539

HLC OUTLOOK The North 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. This submarket has been one of the fastest growing submarkets in recent years. For instance, in the last two calendar years, the North submarket has seen over 11M SF of new industrial deliveries. That number equals more than one-fourth of the entire submarket’s square footage at the end of 2018.

1Q 2021 saw vacancy tick up to 20.5% in the North submarket as the historic levels of new construction continue to create challenges. Leasing activity was strong at 1,199,289 SF for the quarter while net absorption was 170,421 SF. Due to the strong leasing activity and several large lease deals that are rumored to be close to execution as of the close of 1Q, we expect vacancy to begin to tick down during the spring and summer months. With only 1,043,600 SF of spec construction currently in the pipeline (significantly less than any quarter since 2018), there will be an opportunity for this submarket to “catch its breath” and start to work through all of the supply on the ground this calendar year.

NEW DEVELOPMENTS

1,043,600

2,570,959 Source: CoStar

10

LAKE HOUSTON

1,600,000

15.0%

988,707

HUMBLE

• Park 505 at Hardy – a 534K SF project with IDV and Sealy • 59 Logistics Center – a 509,600 SF project with Hunt Southwest

LARGE EXISTING VACANCIES • • • •

Air 59 Logistics Center – 685,400 SF Generation Park (Lincoln Property Company) – 648,720 SF Kennedy Greens Distribution Center – 524,160 SF Cypress Preserve Logistics Center Building 2 – 258K SF

SUBMARKET INTELLIGENCE FAR NORTH

WILLIS LAKE CONROE

MONTGOMERY

CLEVELAND

CONROE

VITAL STATS

4,806,752 SF 12.0%

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

900,000

NEW CANEY

10.0%

TOMBALL SPRING

700,000

DAYTON

HUMBLE

8.0% 500,000 6.0%

HLC OUTLOOK The Far North submarket begins at the southern edge of Montgomery County and stretches north all the way past Conroe. Population growth and access to the DFW market are just some attributes that make the Far North submarket attractive to end users. Another important driver of activity here are local tax incentives offered by Montgomery County and municipalities in order to attract businesses. This emerging submarket is home to several large consumer goods tenants such as Five Below, Wal-Mart, CVS, Home Depot, American Furniture Warehouse, and a recently announced 1.5M SF Lowe’s distribution center that has just kicked off construction.

Vacancy sat at 3.3% at the end of 1Q 2021 in the Far North submarket. Currently, construction activity here is limited to two large BTS projects, a 1.5M SF building for Lowe’s in New Caney and a 612K SF Home Depot BTS in Conroe.

If this area in the Houston metro continues to pick up traction for big box distribution centers, we could see speculative construction gain traction here as well. As of now, almost all new activity has been of the owner-user or build-tosuit variety.

NEW DEVELOPMENTS • Lowe’s Distribution Center – a 1.5M SF BTS project with Clayco • Home Depot Distribution Center – a 612K SF BTS project with Trammell Crow

300,000

4.0%

100,000

2.0%

-100,000

0.0%

-300,000 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

Absorption

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Deliveries

vs. Prev. Qtr

4Q 20

1Q 21

Vacancy

vs. 12 Mths Ago

415,442

109,432

18,457

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.3%

3.9%

9.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

24,774

40,403

57,537

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,112,000

1,506,562

1,005,210

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

402,300

-

Source: CoStar

11

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

12.0%

500,000

10.0%

25,044,850 SF

HOUSTON

250,000

8.0%

SHIP CHANNEL

0 MEDICAL CENTER

6.0%

(250,000)

4.0%

(500,000)

HLC OUTLOOK

2.0%

(750,000)

The majority of industrial product in the Near East submarket was constructed during the 1970s and 1980s.

With limited new construction since that time, the average product age in this submarket is one of the oldest in Houston. Historically, this was the lowest priced submarket in Houston and attracted price-sensitive users.

In particular, this submarket appealed to third-party logistics companies, notably resin repackagers. Its widespread rail infrastructure and proximity to the Port of Houston made it the preferred submarket for port-centric users. That preference has diminished in recent years with the growth of the Port submarket.

0.0%

(1,000,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

Absorption

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Deliveries

vs. Prev. Qtr

1Q 21

Vacancy

vs. 12 Mths Ago

(599,720)

36,016

106,390

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.4%

9.0%

8.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

503,721

399,719

1,102,974

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

176,201 Source: CoStar

12

The vacancy rate increased to 11.1% to end 1Q 2021. It is anticipated that the vacancy rate should hold steady in the near term with no new developments under construction and no anticipated move-outs until the second half of 2021. Net absorption should be modestly positive for 2Q 2021 and comprise multiple smaller leases.

The elevated vacancy rate along with pricing on competing new construction, notably the in Port and North submarkets, will continue to exert pressure on market rents in the Near East, particularly for transactions of 50K SF or greater.

TOP TRANSACTIONS • Vee Express signed a 218,015 SF lease in 8711 Citypark Loop.

• Doggett purchased a 176,201 SF new build at 8404 East Freeway.

• Sealy purchased a 663,821 SF building at 8800 Citypark Loop from First Industrial.

DEALS IN THE MARKET • Triten Infill Portfolio – a 528,094 SF seven (7) building portfolio • 400 Portwall – a 251,500 SF building

-

PASADENA

LARGE EXISTING VACANCIES • • • • • •

Houston Tradeport | 8230 Stedman Street – 371,139 SF 8550A Market Street – 231,800 SF 8705 Citypark Loop – 191,614 SF 8786 Wallisville Road – 137,368 SF 2425 Turning Basin – 127,046 SF 8530 Market Street – 124,375 SF

SUBMARKET INTELLIGENCE PORT AREA

HLC OUTLOOK The Port submarket is strategically located to the Port of Houston’s container terminals, an 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.

The Port submarket is relatively young compared to other submarkets with 93% of the institutional product constructed since the year 2000. The main 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).

DAYTON

HUMBLE

VITAL STATS LAKE HOUSTON

51,798,701 SF

MONT BELVIEU

16.0%

3,000,000

14.0%

2,500,000

12.0%

2,000,000

10.0% 1,500,000 8.0% BAY TOWN

1,000,000 6.0%

SHIP CHANNEL

500,000

4.0%

PASADENA LA PORTE

0

2.0% 0.0% TRINITY BAY

After three straight quarters of increasing vacancy rates and with 1Q 2021 deliveries falling short of their three year running average, absorption exceeded new supply resulting in a slightly reduced vacancy rate of 12.7%. While construction starts were down at the end of 2020, 1Q 2021 saw new development activity return to more normal levels. However, it should be noted that a significant portion of the new development pipeline is attributable to two projects: Hunt Southwest’s 1M SF speculative project in Baytown and Floor & Decor’s 1.5M SF distribution center should be delivered in late 2021. The remainder of the new development pipeline is in buildings less than 100K SF.

(500,000) 1Q 18

ELLINGTON AIRPORT

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

4Q 19

Deliveries

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Vacancy

LEAGUE CITY

The near term outlook for the submarket remains choppy. Although the new development pipeline looks manageable, there are anticipated move-outs which may hinder overall absorption. In particular, Exel is expected to vacate several buildings in Baytown. Additionally, the plastic resin export market, a large driver for this submarket, remains challenged and may not return to more typical volumes until later in 2021.

NEW DEVELOPMENTS • Cedar Port Trade Center – a 1,021,440 SF development by Hunt Southwest • Floor & Decor – a 1.5M SF development by Floor & Decor

LARGE EXISTING VACANCIES • Cedar Port Logistics | 4725 E Grand Parkway South – 644K SF • Bayport South | 10591 Red Bluff Road – 642,994 SF • Underwood Port Logistics | 4600 Underwood – 402,648 SF

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,028,722

1,123,395

948,105

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.7%

14.0%

8.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

420,402

1,865,410

604,745

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,029,157

1,497,486

4,378,202

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

436,046

1,995,780

1,406,966 Source: CoStar

13

SUBMARKET INTELLIGENCE SOUTH HOUSTON

GALLERIA MEDICAL CENTER PASADENA

VITAL STATS

SOUTHWEST 31,012,181 SF

10.0%

HOBBY AIRPORT

500,000 400,000

8.0%

24,343,818 SF

300,000

PEARLAND

200,000 6.0%

100,000 0

4.0%

(100,000) (200,000)

2.0%

(300,000) (400,000)

0.0%

(500,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

Absorption

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Deliveries

vs. Prev. Qtr

4Q 20

1Q 21

Vacancy

vs. 12 Mths Ago

18,822

39,203

41,012

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.6%

6.3%

8.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

172,175

311,895

439,358

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

587,911

548,569

476,673

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

112,000

-

Source: CoStar

HLC OUTLOOK The South submarket benefits from its proximity to the world-renowned Texas Medical Center and growing population in the multiple master-planned communities in the Pearland area. Access to 610 Loop, Highway 288, and Highway 90 allow for easy access to the primary loops for traversing Houston from the South submarket. While the South submarket is one of the smaller submarkets of Houston, it plays a vital role in connecting larger submarkets such as Southwest and Near East/Port. Historically, the submarket has experienced slower leasing velocity and very little new development. Population is less dense within the South submarket when compared to the nearby Southwest submarket. Land values in close proximity to the Texas Medical Center and 610 Loop have increased rapidly in recent years making new industrial development effectively cost prohibitive.

Industrial development opportunities still exist in the outer areas of the submarket near Beltway 8 and Highway 288.

At the end of 1Q 2021, vacancy was 6.3% in the South submarket which was a modest increase from 6.0% at the end of 4Q 2020. Absorption during 1Q 2021 was a positive 40,482 SF which is noteworthy given this is the sixth consecutive quarter of positive absorption. Over the past three years, the submarket has experienced negative absorption due to tenant relocations to other submarkets and downsizing. There has been a modest 112K SF of deliveries during 1Q 2021 with an additional 460,212 SF under construction. The majority of the new construction is due to IDV’s new South Belt Center Phase 1 development.

NEW DEVELOPMENTS • South Belt Central | Phase I – a 436,569 SF development with IDV • South Point Business Park | Phase II | Amazon BTS – a +/- 200,400 SF development with National Property Holdings • A&C Plastics BTS – a 112K SF user-owned development

LARGE EXISTING VACANCIES • 5055 S Loop Freeway E – 133,077 SF • 3110 Corder Street – 109,500 SF • 5901 Griggs Road – 101,707 SF

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SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

BROOKSHIRE

KATY

GALLERIA

VITAL STATS

SUGAR LAND

16.0%

47,352,771 SF

1,800,000

14.0%

RICHMOND MISSOURI CITY

12.0%

HLC OUTLOOK The Southwest submarket is located west of Loop 610 between Interstate 10 and just east of the Fort Bend Tollway encompassing areas in both Harris and Fort Bend Counties. The Southwest industrial submarket has seen significant growth in the last several years due to both speculative and build-to-suit construction. The submarket benefits from its proximity to the affluent population base of Sugar Land, coupled with its identical proximity as the Northwest submarket to the center of population for the city in West Houston. The submarket is well positioned to see an increase in demand in coming years from its direct proximity to the dense and continually growing population base in both West and Southwest Houston.

Vacancy was 10.1% at the close of 1Q 2021, which is a slight decrease from the 2020 vacancy rate at the end of 10.7%. The vacancy rate continues to be impacted by the 4,397,238 SF that was delivered during the 2020 calendar year. The submarket currently has the most new construction activity in the metro area with 4,693,726 SF. It should be noted that Amazon currently has two build-to-suits underway (850K SF at 10507 Harlem Road and 1,081,292 SF at 2303 Hurricane Lane) in the Southwest submarket which accounts for approximately 41% of new construction activity.

TOP LEASE TRANSACTIONS • • • •

4PX Express USA has signed a 347,730 SF lease in 5880 W Fuqua Street.

Awesung has signed a 239,124 SF lease in 611 S Cravens Road.

Soft-Tex International has signed a 166,970 SF lease in 1407 Gillingham Lane.

Boise Cascade has signed a 163,583 SF lease in 500 Industrial Boulevard.

NEW DEVELOPMENTS • • • • • • • •

Boulevard Oaks Business Park | Phase II – a 986,480 SF development with Hines/TA Realty Waypoint Business Park – a 708,944 SF development with 4M Investments and Clarion Park 8Ninety | Phase V – a 676,860 SF development with Trammel Crow and ARTIS REIT Weatherford Farms Industrial Park – a 568,084 SF development with Crow Holdings City Park Logistics Center – a 438,202 SF development with Logistics Property Company Stafford Crossing – a 334,200 SF development with Transwestern and AEW Nova Logistics Park – a 326,812 SF development with Lovett Commercial Sugar Land Crossroads – a 326,807 SF development with Transwestern and Diamond Realty Investments

NEW DEVELOPMENTS • • • •

1111-1113 Gillingham – 266,663 SF 611 S Cravens Road – 238,231 SF 9500 W Sam Houston Parkway South – 231,113 SF 411 Cravens Road – 222,031 SF

1,300,000 10.0% 8.0%

800,000

6.0% 4.0%

300,000

2.0% 0.0%

(200,000) 1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

Deliveries

vs. Prev. Qtr

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Vacancy

vs. 12 Mths Ago

393,720

441,059

662,640

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.2%

10.8%

9.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,496,932

2,084,166

597,036

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,545,294

4,219,086

3,109,112

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

129,444

-

1,371,529 Source: CoStar

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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

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