3Q 2021 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

3Q2021 Property Pictured Above: Ella West Crossing | 606 West Road, Houston, Texas 77038

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HOUSTON INDUSTRIAL MARKET BRIEF 3Q 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. 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 Northeast and Southeast 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 3Q 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 5,025,752 SF

PRAIRIE VIEW

TOMBALL SPRING

DAYTON

NORTH 54,642,302 SF CYPRESS

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

NORTHWEST 112,075,216 SF

LAKE HOUSTON

PORT AREA 53,497,710 SF

MONT BELVIEU

BROOKSHIRE

NEAR EAST 25,307,476 SF

KATY

HOUSTON BAY TOWN

FAR WEST 25,431,516 SF

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

SOUTHWEST 52,470,808 SF SUGAR LAND

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

RICHMOND

SOUTH 25,315,492 SF

PASADENA LA PORTE HOBBY AIRPORT

5

ELLINGTON AIRPORT TRINITY BAY

HLC HOU

INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK

INDUSTRIAL MARKET EXPERTS

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

As of the close of 3Q 2021, market-wide vacancy for distribution and flex product stood at 10.2% for the Houston market, approaching single digits for the first time since 1Q 2020, and representing a 120 basis point decrease from the 11.6% number shown at the close of 2Q 2021. Quarterly absorption reached heights never before seen in Houston, coming in at more than 10M SF, which is more than most historic annual totals. Most of this absorption can be attributed to the more than 20M SF of leasing activity seen in 1Q and 2Q combined. And while leasing activity declined to just under 7M SF during 3Q, tenant activity remains strong market-wide and we anticipate a very active 4Q to cap off a historic year for the Houston market.

New construction continues to lag behind 2019 and 2020 numbers as permitting delays and rising construction costs have lengthened due diligence timelines for many projects.

We have also seen a precipitous increase in land prices for “infill” development sites which can be attributed to the lack of available, easily-developable land near and inside Sam Houston Tollway. Developers are continuing to push further out into the surrounding suburbs to find affordable industrial land that can accommodate larger distribution centers to meet the growing e-commerce consumer demand.

TRENDS AND TRANSACTIONS Tenant activity, measured by “requirements in the market,” continues to remain strong market-wide, highlighted by many large e-commerce and third-party logistics companies looking to lease or purchase additional warehouse space in various submarkets.

The Northwest submarket saw vacancy decrease to 8.4%, marking the first time in 18 months we have seen single digit vacancy in that submarket. Northwest Houston has been the biggest beneficiary of the strong tenant demand seen recently, with almost all of the existing Class A space having been leased.

Absorption

CARTER HOLMES

THOMAS PFEIFER

MATT DEWHIRST

Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751

Market Analyst Houston Industrial Leasing tpfeifer@holtlunsford.com 713.602.3768

Market Analyst Houston Industrial Leasing mdewhirst@holtlunsford.com 713.602.3753

vs. 12 Mths Ago

10,266,813

5,749,252

2,643,823

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.2%

11.6%

11.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

6,823,341

12,249,331

5,748,052

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

14,821,630

15,363,834

17,213,921

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

6,061,181

6

vs. Prev. Qtr

5,655,221

5,139,510

North Houston, which has been a laggard on the vacancy rate for the last two years, continues to trend in a positive direction, experiencing 1,690,630 SF of absorption during 3Q. YTD leasing activity for the North submarket is 5,587,351 SF, trailing only the Northwest submarket in that metric.

HLC HOU FACTS & FIGURES

OVERALL HOU

13.0%

12,000,000

12.0% 10,000,000 11.0% 10.0%

8,000,000

9.0% 6,000,000 8.0% 7.0%

Market

Existing Inventory

Vacancy

4,000,000

6.0% 2,000,000 5.0%

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

Far West

165

25,431,516

3,295,869

3,295,869

13.0%

Northwest

1,534

112,075,216

9,085,859

9,418,800

8.4%

North

608

54,642,302

8,585,147

8,621,467

15.8%

Far North

42

5,025,752

117,705

143,705

2.9%

Near East

249

25,307,476

2,655,067

2,668,647

10.5%

Port

299

53,497,710

4,926,187

5,147,147

9.6%

South

368

25,315,492

1,908,223

1,987,383

7.9%

Southwest

858

52,470,808

4,569,098

4,645,923

8.9%

Totals

4,123

353,766,272

35,143,155

35,928,941

10.2%

4.0%

0 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Deliveries

3Q 21

Vacancy

VACANCY - OVERALL HOU 14.0% 12.0% 10.2% 10.0% 9.9% 8.0%

6.7%

6.0%

6.5%

4.0% 2.0% 0.2%

0.2% 0.0%

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Direct

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Sublet

3Q 21

Total

ABSORPTION - OVERALL HOU 14,000,000 12,000,000 10,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West

1,230,191

2,726,418

1,360,439

3,850,706

Northwest

5,260,969

3,508,016

2,537,741

8,456,831

North

3,114,247

1,836,166

1,446,829

5,587,351

Far North

648,358

621,300

2,112,000

274,235

Near East

(402,124)

16,759

134,454

1,233,710

Port

3,167,433

1,302,645

5,276,237

3,776,198

25,000,000

88,301

548,569

80,000

1,156,085

20,000,000

Southwest

4,555,566

4,093,442

1,873,930

3,303,425

15,000,000

Totals

17,662,941

14,653,315

14,821,630

27,638,541

Market

8,000,000 6,000,000 4,000,000 2,000,000 0

South

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Total Net

4Q 20

1Q 21

2Q 21

3Q 21

Leasing Activity

CONSTRUCTION - OVERALL HOU

10,000,000

5,000,000

Source: CoStar

0 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Delivered Inventory

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Under Construction

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SUBMARKET INTELLIGENCE FAR WEST

VITAL STATS

BROOKSHIRE

14.0%

KATY

4,400,000 3,900,000

12.0%

25,431,516 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 (100,000)

0.0% 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

Absorption

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

Deliveries

vs. Prev. Qtr

3Q 21

Vacancy

vs. 12 Mths Ago

626,630

365,569

600,287

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

13.0%

10.5%

9.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

764,734

1,760,251

39,950

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,360,439

1,985,235

5,722,758

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,390,361

422,138

561,280

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 increased to 13.0% in 3Q 2021 from 10.5% in 2Q 2021. The Far West submarket continued to experience positive absorption of 626,630 SF during 3Q 2021. The Far West submarket has seen strong leasing momentum during 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, Winix America purchasing the 122,138 SF Empire West Building 2, Crawford Electric Supply leasing the 500K SF in the former Medline Building at 501 Commerce Parkway, and Consolidated Electric leasing 49,350 SF at Cane Island Business Center. The supply of new construction continues to increase with 1,390,061 SF of deliveries during 3Q 2021 and another 1,470,439 SF under construction. Multiple industrial developers continue to seek out land positions in the submarket with the expectation of new projects being announced in the future.

NEW DEVELOPMENTS • • • • • • • •

Empire West Business Park | Phase 2 – a 2.3M SF development with Stream Realty 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 West Ten Business Park – a 205K SF development with Adkisson Group Development 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

LARGE EXISTING VACANCIES Source: CoStar

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HLC OUTLOOK

• • • • •

The Uplands Twinwood DC 1 – 737,630 SF Mason Creek Ranch Industrial Park – 373,860 SF 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

112,075,216 SF

14.0%

3,000,000

13.0% 2,500,000

12.0% BROOKSHIRE

11.0%

KATY

2,000,000

HOUSTON

10.0% GALLERIA

1,500,000

9.0%

HLC OUTLOOK The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 112M 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 Sam Houston Tollway.

The vacancy rate in the Northwest submarket decreased 180 basis points to 8.4% at the close of 3Q 2021. The submarket has experienced YTD leasing activity of 8,456,831 SF and YTD positive net absorption of 5,260,969 SF. These are historic figures relative to what the Houston market is accustomed to seeing and represent what we believe to be a growing trend of things to come.

One indicator that Northwest Houston is well positioned is the amount of pre-leasing activity we have seen in new, Class A developments, highlighted by Orca Landsberg recently preleasing all of Seton Lake Logistics Center from Trammell Crow, which is a new 255,704 SF cross dock building just inside Sam Houston Tollway near Highway 249.

NEW DEVELOPMENTS • Home Depot BTS at Republic Business Center – a 657K SF development with National Property Holdings • Seton Lake Logistics Center – a 259,654 SF development with Trammell Crow • Barker Cypress Distribution Center – a 142,100 SF development with Molto • Amazon BTS at Republic Business Center – a 141,360 SF development with National Property Holdings

LARGE EXISTING VACANCIES • • • •

3408 W 11th Street – 279,400 SF 4414 Hollister Road – 234,215 SF Nexus Park NW | Building 2 | 10020 FM 1960 – 192,240 SF 7301-7401 Security Way – 161,099 SF

8.0%

1,000,000

7.0% 500,000

6.0% 5.0%

0

4.0% 3.0%

-500,000 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

2,918,783

2,072,857

1,371,958

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.4%

10.2%

10.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,607,193

3,192,117

1,877,739

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,537,741

2,236,166

1,651,915

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,093,065

2,254,431

1,560,134 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

54,642,302 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) 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

Absorption

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

1,690,630

1,357,253

119,062

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

15.8%

18.2%

15.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

3,055,927

1,270,384

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,446,829

1,220,052

3,347,857

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

416,007

659,778 Source: CoStar

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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 Tollway, 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 13M SF of new deliveries in that timeframe. To put that number in perspective, the entirety of the North submarket’s existing square footage equaled 41,425,028 SF at the end of 2018.

Vacancy in the North submarket continues to decline from the high mark we saw at the beginning of 2021, which was 20.1%. Many of the large holes that were present at the beginning of the year have been filled with new leases being executed for large chunks of vacant space that previously existed. YTD leasing activity comes in at 5,587,351 SF, which puts the North submarket second in absorption only behind Northwest.

NEW DEVELOPMENTS • 59 Logistics Center – a 509,600 SF project with Hunt Southwest

1,159,606

431,452

HLC OUTLOOK

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 Cypress Preserve Logistics Center | 21803 Cypress Slough Drive – 258K SF Park 845 Crossing | 121 Esplanade Boulevard – 244,550 SF

SUBMARKET INTELLIGENCE FAR NORTH

WILLIS LAKE CONROE

MONTGOMERY

CLEVELAND

CONROE

VITAL STATS

5,025,752 SF 12.0%

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

900,000

NEW CANEY

TOMBALL

10.0%

SPRING

700,000

DAYTON

HUMBLE

500,000

8.0%

300,000 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 the local tax incentives offered

by Montgomery County and its various municipalities to attract businesses. This emerging submarket is home to several large distribution centers for companies such as Five Below, Wal-Mart, CVS, Home Depot, American Furniture Warehouse, and Lowe’s.

Vacancy sat at 2.9% at the end of 3Q 2021 in the Far North submarket. Currently, construction activity here is limited to two large build-to-suit projects: a 1.5M SF building for Lowe’s in New Caney and a 612K SF building for Home Depot in Conroe.

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

100,000 4.0%

-100,000 -300,000

2.0% 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

(31,860)

264,776

179,178

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

2.9%

2.2%

6.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

6,861

242,600

12,160

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,112,000

2,604,262

402,300

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

219,000

145,210 Source: CoStar

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SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

14.0%

25,307,476 SF

HOUSTON

600,000 400,000

12.0%

200,000

10.0%

SHIP CHANNEL MEDICAL CENTER

0 8.0%

PASADENA

(200,000) 6.0% (400,000) 4.0%

(600,000)

2.0%

(800,000)

0.0%

(1,000,000) 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

Deliveries

vs. Prev. Qtr

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

38,187

340,410

101,535

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.5%

10.6%

9.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

352,415

377,574

575,529

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

16,759

-

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

Source: CoStar

12

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.

Unlike most other Houston submarkets, 3Q was uneventful for the Near East. Net absorption was a minimal 38K SF for the 3 month period, which improved the occupancy rate by only 0.01%. Despite the lack of robust activity, the Near East should remain relatively stable in the near-term. Known or expected move-outs should be manageable, and the new development pipeline has only one 134K SF spec building underway. It is notable that there are several spec projects proposed which total 1.4M SF which would represent more than 5% growth over the existing stock.

Despite a large presence of third-party logistics providers in the submarket, the Near East has not yet benefited from increased Port volumes and supply chain adjustments as seen in other Houston submarkets, notably the Port.

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 rental rates 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 3Q 2021.

134,454 16,759

HLC OUTLOOK

LARGE EXISTING VACANCIES • • • • • • •

Houston Tradeport | 8230 Stedman Street – 371,139 SF 8550A Market Street – 231,879 SF 8705 Citypark Loop – 191,614 SF 3401 Navigation – 188,100 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 named for its proximity to the Port of Houston’s container terminals.

This submarket also hosts 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.

With 93% of the institutional product built since 2000, this submarket is relatively young compared to other Houston submarkets.

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, Webstaurant).

DAYTON

HUMBLE

VITAL STATS LAKE HOUSTON

53,497,710 SF

MONT BELVIEU

BAY TOWN

14.0%

3,000,000

12.0%

2,500,000

10.0%

2,000,000

8.0%

1,500,000

6.0%

1,000,000

4.0%

500,000

2.0%

0

SHIP CHANNEL

PASADENA LA PORTE

The Port submarket posted its best absorption numbers in years during the third quarter, registering just shy of 1.9M SF. That, combined with a very small amount of new deliveries had a dramatic impact on the vacancy rate, dropping it 340 basis points to 9.6%.

0.0%

(500,000) 3Q 18

ELLINGTON AIRPORT TRINITY BAY

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

The new development pipeline remains robust on its surface with 5M SF under construction.

However, it should be noted that over half of the new construction is attributable to user buildings (ex. Floor & Decor’s 1.5M SF) or specialty product (ex. two freezer buildings totaling 577K SF with over half of that spoken for). Additionally, TGS’s 1.2M SF spec project in Cedar Port accounts for a sizeable amount of the remaining pipeline. There is just 328K SF of spec product under construction in buildings greater than 50K SF.

1Q 20

2Q 20

Deliveries

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

LEAGUE CITY

Given the limited spec construction pipeline combined with current leasing activity, the Port submarket should continue to see improving fundamentals for the next three quarters. This submarket is not without its own challenges. In particular, there are some known or suspected move-outs which have not fully impacted the metrics to date. 9M SF of proposed projects remain on the drawing board. The new development pipeline could heat up quickly, but would not deliver until the 2nd half of 2022 at the earliest. In positive news, the export resin business, a big driver in the submarket, has weathered the worst of the storm caused by COVID issues and the February Texas freeze. Players in the export market are fairly optimistic about increasing volumes for the foreseeable future due to a number of factors

NEW DEVELOPMENTS • Floor & Decor – a 1.5M SF development with Floor & Decor • TGS Cedar Port – a 1.2M SF spec development by TGS

LARGE EXISTING VACANCIES

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,875,637

306,790

(135,810)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.6%

13.0%

12.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

470,532

2,348,864

455,355

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,276,237

2,579,745

3,639,013

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

60,000

1,021,440

231,086 Source: CoStar

• Cedar Port Trade Center | 4633 Borusan Road – 1,021,440 SF • Cedar Port Building 4 | 5335 Cedar Port Parkway – 341,120 SF 13

SUBMARKET INTELLIGENCE SOUTH HOUSTON

GALLERIA MEDICAL CENTER PASADENA

VITAL STATS

SOUTHWEST 31,012,181 SF

HOBBY AIRPORT

500,000

10.0%

400,000

25,315,492 SF

300,000

8.0%

PEARLAND

200,000 100,000

6.0%

0 (100,000)

4.0%

(200,000) (300,000)

2.0%

(400,000) (500,000)

0.0% 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

177,092

(90,213)

253,581

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.9%

8.6%

6.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

565,204

364,050

236,550

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

80,000

684,170

548,569

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

436,569

240,504 Source: CoStar

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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 Interstate 610, 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 Interstate 610 have increased rapidly in recent years making new industrial development cost prohibitive. Industrial development opportunities still exist in the outer areas of the submarket near Sam Houston Tollway and Highway 288.

At the end of 3Q 2021, vacancy was 7.9% in the South submarket which was a decrease from 8.6% at the end of 2Q 2021. Absorption during 3Q 2021 was a positive 177,092 SF. The submarket experienced no new deliveries during 3Q 2021. The 436,569 SF that was delivered during 2Q 2021 with the completion of IDV’s South Belt Center Phase 1 development is significant since the South submarket has experienced very little new construction activity in the past several years in comparison to other submarkets. South Belt Center Phase 1 is already 82.5% leased with the announcement of multiple lease deals during 3Q 2021 including the 305,016 SF lease signed with Yokohama. Looking ahead, Hines is planning to break ground in 2022 on Phase 1 of Lone Star Logistics Park which will consist of four buildings totaling 658,856 SF.

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 Holding

LARGE EXISTING VACANCIES • 411 Brisbane – 345,100 SF • 5055 S Loop Freeway E – 133,077 SF • 3110 Corder Street – 109,500 SF

SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON

BROOKSHIRE

KATY

GALLERIA

VITAL STATS

SUGAR LAND

10.0%

52,470,808 SF

1,800,000 RICHMOND MISSOURI CITY

8.0% 1,300,000 6.0%

HLC OUTLOOK The Southwest submarket is located west of Interstate 610 between Interstate 10 and just east of the Fort Bend Parkway Toll Road 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 5.4% at the end of 3Q 2021 which is a decrease from the 6.2% vacancy rate in 2Q 2021. The vacant rate decreased due to the momentum of 853,236 SF of positive absorption that occurred during 3Q 2021. The 3Q 2021 absorption reflects the largest amount of square footage leased over the past three years. The submarket currently has 1,873,930 SF under construction with a record 3,069,544 SF of develieries occurring during 3Q 2021.

The deliveries include 1,931,292 SF from two different Amazon build-to-suits at 10507 Harlem Road totaling 850K SF and 2303 Hurricane Lane totaling 1,081,292 SF.

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 Kirkwood Industrial – a 540,124 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

LARGE EXISTING VACCANCIES • • • • • • • •

10431 Mula Road – 311,205 SF 1111-1113 Gillingham – 266,663 SF 9500 W Sam Houston Parkway South – 250K SF 411 Cravens Road – 222,031 SF Sugar Land Crossroads | Building 2 – 199,978 SF City Park Logistics Center | Building 3 – 199,170 SF City Park Logistics Center | Building 2 – 176,319 SF Nova Logistics Park – 163,230 SF

800,000 4.0%

300,000

2.0%

0.0%

(200,000) 3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Absorption

Absorption

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Vacancy

vs. 12 Mths Ago

853,236

101,540

150,729

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.4%

6.2%

6.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

896,796

907,948

1,280,385

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,873,930

4,037,445

1,901,509

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

554,536

60,300

112,500 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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