2Q 2021 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

2Q2021 Property Pictured Above: Interwood Distribution Center | 14710 & 14720 John F. Kennedy Boulevard, Houston, Texas 77032

1

HOUSTON INDUSTRIAL MARKET BRIEF 2Q 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 2Q 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 53,037,908 SF CYPRESS

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

NORTHWEST 107,873,546 SF

LAKE HOUSTON

PORT AREA 52,888,594 SF

MONT BELVIEU

BROOKSHIRE

NEAR EAST 25,149,166 SF

KATY

HOUSTON BAY TOWN

FAR WEST 23,686,958 SF

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

SOUTHWEST 48,457,629 SF SUGAR LAND

SOUTH 24,943,310 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 decreased 20 basis points to 11.8% as of the close of 2Q 2021. Net absorption came in at 3,379,117 SF and new deliveries totaled 2,587,704 SF. But by far the largest storyline during 2Q 2021 was the amount of leasing activity seen throughout the market.

Almost 11M SF of industrial space was leased during 2Q 2021, setting a high water mark and beating every other quarter in the history of the Houston market. Much of this leasing activity was driven by several large deals that were inked, including but not limited to the below: • Ferguson has signed a 750,775 SF lease in 100 Empire Boulevard.

• Living Spaces has signed a 685,400 SF lease in 18210 Eastex Freeway.

• The Webstaurant Store has signed a 643,940 SF lease in 4725 E Grand Parkway S. • FedEx has signed a 534K SF lease in 505 Aldine Bender Road.

• Goodman Manufacturing/Daikin has signed a 494,800 SF lease in Sam Houston Distribution Center, Building 2.

CRAIG BEAN

JOHN KRUSE

KELLY LANDWERMEYER

Managing Principal Houston Industrial Leasing cbean@holtlunsford.com 713.602.3752

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

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

• Custom Goods has signed a 353,600 SF lease in 9431 Bay Area Boulevard and 347,860 SF in 10591 Red Bluff Road.

• Hinton Lumber has signed a 240K SF sublease in 359 Old Underwood Road from Distribution NOW. • GCP Paper USA has signed a 235,845 SF lease in 14720 JFK Boulevard.

Every one of the above-mentioned deals, except for the GCP Paper USA deal, are not set to commence until 3Q or 4Q 2021, meaning these figures won’t hit the absorption numbers until subsequent quarterly reports. 2020 saw record absorption for the Houston market, but there is now little to no doubt that 2021 will be ever greater.

We expect vacancy to be back to single digits for the first time since 2019 within a matter of months.

TRENDS AND TRANSACTIONS

• Houston continues to see an uptick in new-to-market e-commerce, third-party logistics, and last-mile delivery requirements. This trend played a large part in the historic amount of leasing activity during 2Q 2021 and will continue to drive leasing activity and absorption for the foreseeable future.

• The North submarket, which has been a laggard on the vacancy rate for the last two years, finally saw some positive news during 2Q 2021 with the signing of three deals in excess of 235K SF. Several other smaller deals were also inked in the North, bringing total leasing activity to 2,806,878 SF, the highest total ever for the submarket.

CARTER HOLMES

THOMAS PFEIFER

Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751

Market Analyst Houston Industrial Leasing tpfeifer@holtlunsford.com 713.602.3751

Absorption

vs. 12 Mths Ago

3,379,117

1,654,560

4,069,907

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.8%

12.0%

10.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

10,703,400

7,897,770

5,138,792

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

14,492,019

14,695,484

15,930,379

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,587,704

6

vs. Prev. Qtr

3,239,354

6,597,585

• New construction starts are expected to increase throughout the remainder of 2021 as more developers descend on Houston looking for well-located, developable sites. Confidence in speculative development is significantly higher than just two or three quarters ago due to the increased leasing activity and signs of rent growth in Class A product which had been stagnant for several years due to cap rate compression.

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

Total RBA

Direct SF

Total SF

Vac. %

Far West

151

23,686,958

2,202,005

2,202,005

9.3%

Northwest

1,363

107,873,546

10,895,029

11,200,600

10.4%

North

566

53,037,908

10,010,227

10,030,043

18.9%

41

4,806,752

111,845

111,845

2.3%

Near East

242

25,149,166

2,607,523

2,677,575

10.6%

Port

293

52,888,594

6,953,102

7,388,495

14.0%

South

363

24,943,310

2,093,872

2,148,032

8.6%

Southwest

844

48,457,629

4,342,076

4,469,742

9.2%

3,863

340,843,863

39,215,679

40,228,337

11.8%

Totals

1,000,000

5.0%

# Bldgs.

Far North

2,000,000

6.0%

0

4.0%

(1,000,000) 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Deliveries

2Q 21

Vacancy

VACANCY - OVERALL HOU 14.0% 11.8%

12.0%

11.5% 10.0% 8.0% 6.6% 6.0%

6.3%

4.0% 2.0% 0.3%

0.3% 0.0%

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Direct

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Sublet

2Q 21

Total

ABSORPTION - OVERALL HOU 12,000,000

10,000,000

8,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West

593,261

1,036,057

1,929,940

2,293,122

Northwest

188,833

645,114

1,226,961

5,453,427

North

750,539

988,707

1,210,123

4,115,096

Far North

461,218

402,300

2,331,000

267,374

Near East

435,911

0

0

793,657

Port

1,037,696

1,244,420

3,367,062

2,772,266

25,000,000

South

(72,348)

548,569

80,000

558,844

20,000,000

Southwest

1,655,677

1,018,668

4,346,933

2,347,384

15,000,000

Totals

5,050,787

5,883,835

14,492,019

18,601,170

Market

6,000,000

4,000,000

2,000,000

0 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Total Net

3Q 20

4Q 20

1Q 21

2Q 21

Leasing Activity

CONSTRUCTION - OVERALL HOU

10,000,000

5,000,000

Source: CoStar

0 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Delivered Inventory

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Under Construction

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SUBMARKET INTELLIGENCE FAR WEST

VITAL STATS

BROOKSHIRE

14.0%

4,400,000

12.0%

3,900,000

KATY

23,686,958 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) 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

3Q 20

4Q 20

Deliveries

vs. Prev. Qtr

1Q 21

2Q 21

Vacancy

vs. 12 Mths Ago

354,569

238,692

105,391

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.3%

10.3%

9.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

967,401

1,325,721

130,978

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,929,940

1,424,999

5,984,038

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

122,138

913,919

SUGAR LAND

The Far West submarket is located 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 decreased to 9.1% in 2Q 2021 from 10.3% in 1Q 2020. The Far West submarket continued to experience positive absorption of 354,569 SF during 2Q 2021. The Far West submarket has seen strong leasing activity during both 1Q and 2Q 2021 with multiple deals being announced such as Rooms-To-Go leasing 498,231 SF in Jordan Ranch Distribution Center, RTIC leasing 433,200 SF at Clay 99, Ferguson leasing 750,775 SF in Empire West Building 3, Warefore Solutions leasing 163,144 SF in Empire West Building 1, and Winix America purchasing the 122,138 SF Empire West Building 2. The supply of new construction continues to increase with 122,138 SF of deliveries during 2Q 2021 and another 1,929,940 SF under construction.

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 • Point West Distribution Center – a 133,900 SF development with Realty 1 Partners

244,850 Source: CoStar

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HLC OUTLOOK

LARGE EXISTING VACANCIES • Pederson Distribution Center – 205,200 SF • Cane Island Business Center – 148,050 SF • First Grand Parkway | Building 1 – 144,045 SF

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

TOMBALL

VITAL STATS

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

107,873,546 SF

14.0%

2,500,000

13.0%

2,000,000

12.0% BROOKSHIRE

1,500,000

11.0%

KATY

HOUSTON

10.0%

1,000,000

GALLERIA

9.0%

500,000

8.0%

HLC OUTLOOK The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 107M 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 10.4% at the close of 2Q 2021, a slight decrease from 10.7% in 1Q 2021. The submarket experienced leasing activity of 2,864,005 SF and positive net absorption of 770,620 SF. These numbers represent a good mix of new Class A product and older Class B product.

Although the vacancy factor remains in double-digits, the leasing activity and general market activity present is leading to increased rents for both older and newer vintage buildings. Currently, there are 1,226,961 SF under construction. However, a majority of that number is build-to-suit projects, meaning we will continue to see the market tighten in the coming quarters.

NEW DEVELOPMENTS • 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 • • • • •

7301-7401 Security Way – 296,839 SF 3408 W 11th Street – 279,400 SF 4414 Hollister Road – 234,215 SF Telge 290 Logistics Center | 14803 Cypress N Houston Road – 207,635 SF Nexus Park NW | Building 2 | 10020 FM 1960 – 192,240 SF

7.0%

0

6.0%

-500,000

5.0% -1,000,000

4.0% 3.0%

-1,500,000 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

1Q 20

Deliveries

vs. Prev. Qtr

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Vacancy

vs. 12 Mths Ago

770,620

272,929

556,551

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.4%

10.7%

10.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,864,005

2,589,422

1,808,031

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,226,961

1,767,483

1,877,930

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

484,594

160,520

1,109,988 Source: CoStar

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SUBMARKET INTELLIGENCE NORTH HOUSTON

SPRING

VITAL STATS 21.0% 19.0%

2,600,000

17.0%

2,100,000

15.0%

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

53,037,908 SF

LAKE HOUSTON

1,600,000

13.0% 1,100,000 11.0% 600,000

9.0%

100,000

7.0% 5.0%

(400,000) 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

1Q 20

Deliveries

vs. Prev. Qtr

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Vacancy

vs. 12 Mths Ago

704,066

46,473

374,328

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

18.9%

20.2%

14.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,806,878

1,308,218

583,097

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,210,123

257,972

2,292,276

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

988,707

733,311

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 with a wave of new construction that started in 2019 contributing to over 12M SF of new deliveries in that timeframe. To put that number in perspective, the entirety of the North submarket’s existing square footage equaled 40,882,265 SF at the end of 2018.

No new product was delivered in 2Q 2021 in the North submarket, which marks the first quarter to see no deliveries since 4Q 2018. Currently, we are tracking 1,210,123 SF of product under construction, of which 902,080 SF is speculative. The current reprieve in new construction will help alleviate the negative perception a high vacancy factor has caused this submarket since it climbed to double digits in late 2019.

But what will be more helpful is the 2,806,878 SF of leasing activity seen in 2Q 2021 which will translate into significant amounts of positive absorption in 3Q and 4Q 2021. Currently, vacancy sits at 18.9% for the submarket, down from 20.2% at the close of 1Q 2021.

TOP LEASE TRANSACTIONS • • • • •

Living Spaces has signed a 685,400 SF lease in 18210 Eastex Freeway.

FedEx has signed a 534K SF lease in 505 Aldine Bender Road.

GCP Paper USA has signed a 235,845 SF lease in 14720 JFK Boulevard.

Delandis has signed a 108K SF lease in 2032 Cypress Station Drive.

ASD Lighting has signed a 96,140 SF lease in 15655 Milner Road.

NEW DEVELOPMENTS • 59 Logistics Center – a 509,600 SF project with Hunt Southwest • Fairway North Logistics Park | Building 2 – a 392,480 SF project with Lovett Industrial

Source: CoStar

LARGE EXISTING VACANCIES • Generation Park | 10100 W Lake Houston Parkway – 648,720 SF • Kennedy Greens Distribution Center | 13300 JFK Boulevard – 524,160 SF • Rankin 45 Distribution Center | 13800 North Freeway – 356,975 SF

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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

8.0%

HUMBLE

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 easy access to the Dallas-Fort Worth market, as well as the rest of Texas, are just some attributes that make the Far North submarket attractive to many end users.

Another important driver of activity here are local tax incentives offered by Montgomery County and its various 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.

Vacancy sat at 2.3% at the end of 2Q 2021 in the Far North submarket. Currently, construction activity here is limited to three build-to-suit projects: a 1.5M SF building for Lowe’s in New Caney, a 612K SF Home Depot BTS in Conroe, and a 219K SF Amazon BTS by Lovett Industrial near the Grand Parkway.

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 • Amazon Last Mile at 99 North Logistics Park – a 219K SF project with Lovett Industrial

300,000

4.0%

100,000

2.0%

-100,000

0.0%

-300,000 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

2Q 21

Vacancy

vs. 12 Mths Ago

45,776

415,442

866,278

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

2.3%

3.3%

7.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

242,600

24,774

161,475

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,331,000

2,823,262

402,300

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

402,300

860,000 Source: CoStar

11

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

600,000

25,149,166 SF

HOUSTON

12.0% 400,000 10.0% 200,000 8.0%

0

6.0%

(400,000)

2.0%

(600,000)

0.0%

(800,000) 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

2Q 21

Vacancy

vs. 12 Mths Ago

340,010

(775,921)

(218,568)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.6%

12.0%

9.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

289,936

503,721

1,073,376

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

16,759

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

HLC OUTLOOK The majority of industrial product in the Near East submarket was constructed in 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.

As anticipated, the vacancy rate stabilized in the short-term, improving a bit over 1Q 2021 to end 2Q 2021 at 10.4%. Aside from a built-to-suit at Houston Tradeport, there are no new significant developments under construction. However, there is a 3%+ spread between the current vacancy rate and the availability rate. Sublet space accounts for approx one quarter of the spread. The remainder is known move-outs or uncertain future tenancy. This will present a modest challenge between now and year-end for the overall vacancy rate.

Despite some known losses of tenants headed to competing submarkets, there has been an uptick in activity from prospective tenants new to the Houston area. These prospects would provide much welcomed net absorption for the sub-market.

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

TOP TRANSACTIONS No leases greater than 100K SF were completed in 2Q 2021.

-

Source: CoStar

12

PASADENA

(200,000)

4.0%

-

SHIP CHANNEL MEDICAL CENTER

LARGE EXISTING VACANCIES • • • • • •

Houston Tradeport | 8230 Stedman Street – 371,139 SF 8550A Market Street – 229,500 SF 8705 Citypark Loop – 191,614 SF 2425 Turning Basin – 127,046 SF 8530 Market Street – 124,375 SF 200 Portwall – 110K SF

SUBMARKET INTELLIGENCE PORT AREA

HLC OUTLOOK The Port submarket is strategically located near 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.

DAYTON

HUMBLE

VITAL STATS 3,000,000

14.0%

The Port submarket is relatively young compared to other Houston 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).

After experiencing a drop in the vacancy rate in 1Q 2021 after three straight quarters of increases, the vacancy rate increased to 14% to end 2Q 2021. However, the increased vacancy rate was solely attributable to the delivery of Hunt Southwest’s 1M SF spec project in Cedar Port. Leasing activity in the submarket remains healthy.

16.0%

LAKE HOUSTON

52,888,594 SF

MONT BELVIEU

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

The construction pipeline remains robust on the surface with 3.3M SF under construction which represents an approximate 6% increase to the existing stock. However, it should be noted that much of the new construction is attributable to either user buildings (ex. Floor & Decor’s 1.5M SF) or specialty product (ex. two freezer buildings totalling 577K SF with over half of that spoken for). There is just under 250K SF of spec product under construction in buildings greater than 50K SF.

(500,000) 2Q 18

ELLINGTON AIRPORT

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

4Q 19

1Q 20

Deliveries

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Vacancy

LEAGUE CITY

Given the limited spec construction pipeline combined with current leasing activity, the Port submarket should see improving fundamentals for the next three to four quarters, though this could be lumpy as the submarket is not without challenges. In particular, there are some known or suspected move-outs which have not fully impacted the metrics to date, including Exel’s Baytown campus. While the export resin market, a big driver in the submarket, seems to have weathered the worst of the storm caused by COVID issues and the February Texas freeze, the industry has not returned to pre-pandemic volumes. Lastly, 9M SF of proposed projects remain on the drawing board. The new development pipeline could heat up quickly, but would not deliver until mid 2022 at the earliest.

TOP LEASE TRANSACTIONS • The Webstaurant Store has signed a 644K SF lease in 4725 E Grand Parkway South.

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

LARGE EXISTING VACANCIES • Cedar Port Trade Center | 4633 Borusan Road – 1,021,440 SF • Cedar Port Building 4 | 5335 Cedar Port Parkway – 341,120 SF

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

51,815

985,881

561,478

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

14.0%

12.4%

12.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,351,864

420,402

592,262

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,367,062

3,022,393

2,181,418

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,033,340

211,080

2,434,288 Source: CoStar

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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%

24,943,310 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) 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

Absorption

Absorption

4Q 19

1Q 20

Deliveries

vs. Prev. Qtr

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Vacancy

vs. 12 Mths Ago

(91,270)

18,922

393,014

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.6%

6.6%

6.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

332,013

226,831

154,003

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

619,297

789,073

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

112,000

3,100 Source: CoStar

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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 2Q 2021, vacancy was 8.6% in the South submarket which was an increase from 6.6% at the end of 1Q 2021. Absorption during 2Q 2021 was a negative 91,270 SF. The submarket has seen negative absorption due tenant relocations to other submarkets and downsizing. The submarket experienced 436,569 SF of develiveres during 2Q 2021 due to the completion of IDV’s South Belt Center Phase 1 development. The recent delivery is significant since the South submarket has experienced very little new construction activity in the past several years in comparison to other submarkets.

NEW DEVELOPMENTS

80,000 436,569

HLC OUTLOOK

• 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

LARGE EXISTING VACANCIES • • • • • •

411 Brisbane – 345,100 SF South Bent Center | Building 1 – 305,016 SF South Belt Center | Building 2 – 131,553 SF 5055 S Loop Freeway E – 133,077 SF 3110 Corder Street – 109,500 SF 5901 Griggs Road – 101,707 SF

SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

BROOKSHIRE

KATY

GALLERIA

VITAL STATS

SUGAR LAND

16.0%

48,457,629 SF RICHMOND MISSOURI CITY

1,800,000

14.0% 12.0%

1,300,000 10.0%

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 9.2% at the end of 2Q 2021 which is a decrease from the 10.2% vacancy rate in 1Q 2021. The vacancy rate continues to be impacted by the 835,632 SF that was delivered in 2Q 2021. The Southwest submarket experienced 1,203,531 SF of positive absorption during 2Q 2021 which is more than any other submarket during the quarter. The submarket currently has the most new construction activity in the metro area with 4,346,933 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 44% of new construction activity.

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 Five Corners – a 541,946 SF development with Levey Group 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

LARGE EXISTING VACCANCIES • • • • •

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 City Park Logistics Center | Building 3 – 199,170 SF

8.0%

800,000

6.0% 4.0%

300,000

2.0% 0.0%

(200,000) 2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

Deliveries

vs. Prev. Qtr

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Vacancy

vs. 12 Mths Ago

1,203,531

452,142

1,431,435

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.2%

10.2%

8.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

848,703

1,498,681

635,570

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,346,933

4,712,351

3,027,747

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

835,632

183,036

1,344,501 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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