4Q 2021 Houston Industrial Market Brief

Market Brief...

Houston

INDUSTRIAL

4Q2021 Property Pictured Above: Independence Logistics Park | 10100 Porter Road | La Porte, Texas 77571

1

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 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 4Q 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 CONROE

FAR NORTH 7,289,840 SF

HLC SUBMARKET COVERAGE

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

NEW CANEY

TOMBALL SPRING

DAYTON

NORTH 55,717,181 SF GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

HUMBLE

NORTHWEST 112,421,587 SF

LAKE HOUSTON

MONT BELVIEU

BROOKSHIRE

NEAR EAST 24,907,321 SF KATY

HOUSTON

FAR WEST 25,908,603 SF

BAY TOWN SHIP CHANNEL

GALLERIA

SOUTHWEST 53,325,732 SF

MEDICAL CENTER

SOUTH 25,138,340 SF

PORT AREA 55,553,891 SF

PASADENA LA PORTE HOBBY AIRPORT

SUGAR LAND

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

At the close of 4Q 2021, market-wide vacancy for distribution and flex product stood at 8.9% for the Houston market, marking the first time the vacancy factor has been in single digits since 1Q 2020. Absorption registered at just over 8M SF during the fourth quarter capping off an historic year for the market.

Total annual absorption was just over 26M SF market-wide for calendar year 2021. To put that number into context, 2020 saw 13.5M SF of absorption and 2019 just over 7M SF, which was also roughly the historical annual average going back to 2010. To put it lightly, 2021 was like no other year we’ve ever seen in the Houston industrial market.

As we look forward to 2022, we expect to see the strong tenant demand continue, and there will be an abundance of new Class A product coming online that will attempt to meet that demand. The investment sale market will continue to be robust as well with a plethora of capital looking to place bets on industrial real estate.

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

TRENDS AND TRANSACTIONS

Total leasing activity for calendar year 2021 equaled 35.7M SF market-wide. This recordnumber can be attributed to both new-to-market tenants such as Ross Dress For Less, GCP Paper, and The Webstaurant Store inking large leases, as well as existing tenant expansions throughout the market.

Rental rates began to materially increase for the first time in several years in 2021 due to the shrinking supply of available, functional distribution space coupled with the record tenant demand. Increased land prices and construction costs for new Class A projects will continue to push rents higher in the coming quarters.

Absorption

CARTER HOLMES

THOMAS PFEIFER

MATT DEWHIRST

Market Associate 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

8,145,004

12,198,191

6,635,680

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.9%

10.0%

11.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

6,767,092

8,245,005

9,603,461

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

14,388,436

14,056,491

12,807,624

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,411,992

6

vs. Prev. Qtr

7,943,543

8,973,178

Northwest Houston, long considered the most sought-after submarket by institutional investors and tenants alike, continues to be the pace setter for the market in terms of leasing activity and absorption.

HLC HOU FACTS & FIGURES

OVERALL HOU

13.0%

14,000,000

12.0%

12,000,000

11.0% 10,000,000

10.0% 9.0%

8,000,000

8.0%

6,000,000

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

170

25,908,603

2,801,431

2,801,431

10.8%

Northwest

1,550

112,421,587

8,174,197

8,459,965

7.5%

North

612

55,717,181

6,514,358

6,573,975

11.8%

Far North

44

7,289,840

109,594

135,594

1.9%

Near East

246

24,907,321

2,379,458

2,415,840

9.7%

Port

322

55,553,891

5,039,353

5,332,813

9.6%

South

382

25,138,340

1,434,653

1,467,153

5.8%

Southwest

871

53,325,732

4,608,490

4,782,744

9.0%

4,197

360,262,495

31,061,534

31,969,515

8.9%

0

4.0% 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Absorption

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Deliveries

4Q 21

Vacancy

VACANCY - OVERALL HOU 14.0% 12.0%

8.9% 8.6%

6.8%

8.0% 6.0%

6.5%

Totals

10.0%

4.0% 2.0% 0.3%

0.3% 0.0%

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Direct

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Sublet

4Q 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

2,226,681

3,229,670

2,758,003

3,189,565

4,000,000

Northwest

5,498,832

2,818,695

2,802,617

10,761,016

2,000,000

North

5,209,722

2,367,759

1,712,238

7,633,870

Far North

2,768,469

2,733,300

0

891,985

Near East

(157,417)

16,759

1,594,857

2,047,122

Port

4,987,032

3,130,630

4,287,309

5,642,625

25,000,000

South

632,099

569,055

151,342

1,692,069

20,000,000

Southwest

5,120,056

4,791,903

1,082,070

3,896,327

15,000,000

Totals

26,285,474

19,657,771

14,388,436

35,754,579

Market

8,000,000 6,000,000

0 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Total Net

1Q 21

2Q 21

3Q 21

4Q 21

Leasing Activity

CONSTRUCTION - OVERALL HOU

10,000,000

5,000,000

Source: CoStar

0 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Delivered Inventory

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

4Q 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%

25,908,603 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% 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Absorption

Absorption

3Q 20

4Q 20

1Q 21

2Q 21

Deliveries

vs. Prev. Qtr

3Q 21

4Q 21

vs. 12 Mths Ago

671,630

4,274,182

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.8%

12.9%

7.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

252,778

764,734

80,901

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,758,003

1,470,439

1,896,566

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,435,361

4,386,701 Source: CoStar

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SUGAR LAND

The Far West submarket is located along Interstate 10, stretching west from Highway 6 past Brookshire, and encompasses 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 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, Domino’s, Ross Dress for Less, Glazer’s Wine & Spirits, 99 Cent Stores, and Igloo.

Vacancy decreased to 10.8% in 4Q 2021 from 12.9% in 3Q 2021. The Far West submarket continued to experience positive absorption of 920,412 SF during 4Q 2021 which is the largest quarter of absorption since the record breaking 4,274,182 SF of positive absorption at the end of 4Q 2020. The Far West submarket has seen strong leasing momentum throughout 2021 with multiple deals being announced, including:

Vacancy

920,412

425,974

HLC OUTLOOK

• • • • • •

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 425,974 SF of deliveries during 4Q 2021 and another 2,758,003 SF under construction. Multiple industrial developers continue to seek out land positions in the submarket with new projects in the pipeline including Hunt Southwest’s single building 1M SF I-10 West Trade Center project and Falcon Commercial Development’s 1.58M SF Kingsland Ranch Logistic Park.

NEW DEVELOPMENTS • • • •

Empire West Business Park | Phase 2 – a 2.3M SF development with Stream Realty Kingsland Ranch Logistic Park – a 1,582,035 SF development with Falcon Development/Clarion I-10 West Trade Center – a 1,051,080 SF development with Hunt Southwest 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 • The Uplands Twinwood DC 1 – 737,630* SF (*Short-term Igloo lease for 368,815 SF) • Mason Creek Ranch Industrial Park – 373,860 SF • Pederson Distribution Center – 205,200 SF • Cane Island Business Center – 148,050 SF

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

TOMBALL

VITAL STATS

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

112,421,587 SF

14.0%

3,400,000

13.0% 2,900,000

12.0% BROOKSHIRE

2,400,000

11.0%

KATY

HOUSTON

10.0%

1,900,000

GALLERIA

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 and Highway 99 (also known as the Grand Parkway) in recent years due to the lack of available land sites near the Sam Houston Tollway or Beltway 8.

The vacancy rate in the Northwest submarket decreased 100 basis points from 8.5% at the close of 3Q 2021 to 7.5% and year-end. The submarket experienced leasing activity of 10.7M SF for the year and positive net absorption of 5.5M SF, both leading the way market-wide.

1,400,000

8.0%

900,000

7.0% 6.0%

400,000

5.0% -100,000

4.0%

-600,000

3.0% 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

Absorption

2Q 20

3Q 20

Deliveries

vs. Prev. Qtr

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

Vacancy

vs. 12 Mths Ago

Developers and tenants alike continue to show strong appetite for new product in Northwest Houston and in the second half of 2021 most Class A space had been spoken for. As we turn the page to 2022, we expect any new product delivering in the submarket to fare well as the growing demand shows no signs of tapering off.

1,363,225

3,041,878

125,772

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.5%

8.5%

10.3%

NEW DEVELOPMENTS

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

• Weiser Business Park Phase I – a 557,490 SF three (3) building project with Trammell Crow and Clarion Partners • Highland Grove Phase II – a 385,450 SF development with Modlo • Seton Lake Logistics Center – a 255,704 SF development with Trammell Crow and Clarion Partners • Barker Cypress Distribution Center – a 142,100 SF development with Molto

LARGE EXISTING VACANCIES • • • • •

3480 W 11th Street – 279,400 SF 7301-7401 Security Way – 161,099 SF 8602 Fallbrook Drive – 138,600 SF 7350 Langfield Road – 120,953 SF 8708 W Little York Road – 103,951 SF

1,642,861

3,049,149

2,319,849

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,802,617

2,811,269

1,618,345

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

317,486

1,211,427

307,156 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

55,717,181 SF

LAKE HOUSTON

1,600,000

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

9.0%

100,000

7.0%

(400,000)

5.0% 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

Absorption

2Q 20

3Q 20

Deliveries

vs. Prev. Qtr

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

Vacancy

vs. 12 Mths Ago

2,072,019

1,908,630

(78,028)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.8%

14.7%

17.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,427,575

1,745,078

976,886

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,712,238

1,566,446

1,639,159

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

509,600

650,452

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 (also known as Beltway 8), 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 almost 14M SF of new deliveries in that timeframe.

Vacancy in the North submarket continues to decline quarter over quarter, coming in at 11.8% at the end of the year compared to 14.7% at the close of 3Q 2021. Absorption was very strong in 4Q 2021 at just over 2M SF, the highest number since 2Q 2019. Annual absorption for the submarket was 5.2M SF narrowly trailing the Northwest submarket for the highest total in the market. This is especially impressive for the North submarket considering it has almost exactly half the overall amount of square footage as the Northwest.

Currently, there is just over 1.7M SF of new construction underway in the submarket, with 629,186 SF of that total being an Amazon build-to-suit at Prologis Presidents Park.

However, there are several new projects in the planning stages and we expect to see a decent amount of new construction beginnings announced in 1Q 2022. Some of the existing large vacancies will need to be leased in order to avoid the vacancy rate increasing to 2020 levels over the course of 2022.

NEW DEVELOPMENTS • Prologis Presidents Park Amazon BTS – a 629,186 SF project with Prologis • 59 Logistics Center – a 509,600 SF project with Hunt Southwest

LARGE EXISTING VACANCIES

1,882,953 Source: CoStar

10

HLC OUTLOOK

• • • • • • •

10100 W Lake Houston Parkway – 648,720 SF 13300 JFK Boulevard – 524,160 SF 17440 Highway 59 – 509,600 SF 13800 North Freeway – 356,975 SF 21803 Cypress Slough Drive – 258K SF 121 Esplanade Boulevard – 244,550 SF 15789 Aldine Westfield Road – 219,534 SF

SUBMARKET INTELLIGENCE FAR NORTH

WILLIS LAKE CONROE

MONTGOMERY

CLEVELAND

CONROE

VITAL STATS

7,289,840 SF 12.0%

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

1,500,000

NEW CANEY

10.0%

TOMBALL

1,300,000

SPRING

DAYTON

1,100,000

8.0%

HUMBLE

900,000 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.

As the market’s smallest submarket, with only 7.3M SF of institutional-grade industrial product, Far North tends to be overlooked by many investors and brokers. However, with vacancy at 1.9% at the end of 4Q 2021, and with over 2.7M SF of positive absorption during calendar year 2021 (albeit most of that via build-to-suits with Lowe’s, Home Depot, and Amazon), this is a submarket that should be garnering more attention. As Montgomery County continues to experience burgeoning population growth, highlighted by Conroe, there will be an increased need for shallow-bay assets to service the growing rooftops in the area.

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

700,000 500,000

4.0%

300,000 2.0%

100,000

0.0%

-100,000 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Absorption

Absorption

3Q 20

4Q 20

1Q 21

2Q 21

Deliveries

vs. Prev. Qtr

3Q 21

4Q 21

Vacancy

vs. 12 Mths Ago

620,111

1,468,140

109,432

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

1.9%

2.2%

3.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

5,750

6,861

1,540,403

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

1,104,262

1,506,562

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

612,000

1,500,000

Source: CoStar

11

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

14.0%

24,907,321 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) 4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

Absorption

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

Deliveries

vs. Prev. Qtr

4Q 21

Vacancy

vs. 12 Mths Ago

252,807

25,687

36,016

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.7%

10.7%

9.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

617,406

548,421

399,719

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,594,857

134,454

16,759

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

16,759

-

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 is the lowest priced submarket in Houston and attracts price-sensitive users.

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

Additionally, the rent discount in this submarket relative to competing Houston submarkets has moderated over the past five years, reducing its attractiveness to certain users.

After three straight quarters of double-digit vacancy, the Near East submarket had a solid end to the year. For 4Q 2021, the submarket posted approximately 253K SF of net absorption. Despite no new leases exceeding 100K SF for the previous two quarters, there were five such deals completed in 4Q 2021, lowering the vacancy rate to 9.7%. However, that remains the highest year-ending vacancy rate for the submarket in many years. Net absorption during 4Q 2021 was largely driven by existing Houston and/or Near East tenants expanding their presence in the market.

Prior to 4Q 2021, the Near East submarket had upward pressure on its vacancy rate as there were known or expected move-outs that were running 3.0% higher than the vacancy rate itself. Not only did the submarket reduce its vacancy rate during the quarter, the gap between available and vacant space lowered during 4Q 2021 to a more typical level.

New development remains muted for this submarket. There are only two recent developments on the ground, with one of them spoken for and the other in lease up phase. The new development pipeline has only one 134K SF spec building underway. It is notable that there are several spec projects proposed totaling 1.8M SF which would represent approximately 6.5% growth over the existing stock.

Though not on par with other Houston submarkets, current new development is robust by this submarket’s recent standards. There are two speculative developments delivered in 2019 and 2020, with one subsequently purchased by a user and the other still in its initial lease up phase. There is one additional 134K SF spec building underway south of Railwood Industrial Park. Other new developments include two BTS development buildings totaling 1.145 mil SF, and a spec cold storage facility of 315k SF.

LARGE EXISTING VACANCIES Source: CoStar

12

HLC OUTLOOK

• • • •

8550A Market Street – 231,879 SF 8705 Citypark Loop – 191,614 SF Houston Tradeport | 8230 Stedman Street – 175,352 SF 2425 Turning Basin – 127,046 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

55,553,891 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

After an outstanding 3Q when the submarket reduced its vacancy rate from more than 13.0% to 9.9%, 4Q saw only modest improvement in vacancy as absorption and deliveries were on par, and ended the year at 9.6%.

(500,000)

0.0% 4Q 18

ELLINGTON AIRPORT TRINITY BAY

1Q 19

2Q 19

3Q 19

4Q 19

1Q 20

Absorption

The new development pipeline has fallen since 3Q but remains robust on its surface with over 4M SF under construction. Aside from PolyOne’s 800k SF facility, much of the new development pipeline is speculative. However, it should be noted that 680k SF of the pipeline is freezer/cooler product. Additionally, TGS’s 1.2M SF spec project in Cedar Port accounts for a sizable amount of the remaining pipeline.

2Q 20

3Q 20

Deliveries

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

Vacancy

LEAGUE CITY

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,809,699

1,885,237

1,678,394

There remains almost 9M SF of proposed product on the drawing board. Given the submarket’s recent absorption performance, and given delivery timelines in the current supply chain restrained environment, the submarket is well positioned to accommodate the proposed pipeline.

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

In continued positive news, the export resin business, a significant driver in the submarket, has recovered from trying market conditions in the first three quarters of 2021. Players in the export market are fairly optimistic about increasing volumes for the foreseeable future due to improved market dynamics.

9.6%

9.9%

13.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

LARGE NEW DEVELOPMENTS • Floor & Decor – a 1.5M SF development with Floor & Decor (delivered 4Q) • TGS Cedar Port – a 1.2M SF spec development by TGS

LARGE EXISTING VACANCIES • • • •

Cedar Port Building 4 | 5335 Cedar Port Parkway – 341,120 SF Port 10 | 2700 East Freeway – 295,323 SF Bayport South | 10591 Red Bluff – 295,134 SF Bay Area Business Park | 10619 Red Bluff – 251,680 SF

1,844,337

492,622

1,875,410

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,287,309

4,867,869

1,282,645

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,827,985

60,000

2,396,368 Source: CoStar

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SUBMARKET INTELLIGENCE SOUTH HOUSTON

GALLERIA MEDICAL CENTER PASADENA

VITAL STATS

SOUTHWEST 31,012,181 SF

HOBBY AIRPORT

600,000

10.0%

500,000 400,000

8.0%

25,138,340 SF PEARLAND

300,000 200,000

6.0%

100,000 0 4.0%

(100,000) (200,000)

2.0%

(300,000) (400,000)

0.0%

(500,000) 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

4Q 21

Vacancy

vs. 12 Mths Ago

545,091

218,275

38,503

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.8%

7.9%

6.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

552,817

572,012

330,006

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

151,342

20,486

569,055

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

20,486

-

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 continue to exist in the outer areas of the submarket near Sam Houston Tollway and Highway 288.

At the end of 4Q 2021, vacancy was 5.8% in the South submarket which was a decrease from 7.9% at the end of 3Q 2021. Absorption during 4Q 2021 was a positive 545,091 SF, which was the largest amount of quarterly absorption occurring in the submarket during the past three years.

The absorption was directly related to South Belt Center Phase I becoming 75% leased, which included the 305,016 SF lease signed with Yokohama. The only significant project under construction is Summit Real Estate Group’s Corporate Center Fannin which is a single building totaling 151,342 SF. Looking ahead, Hines is planning to break ground in 2022 on Phase 1 of Lone Star Logistics Park which will consist of four (4) buildings totaling 658,856 SF and Hillwood is planning to break ground on Beltway 66 Business Park which will consist of four (4) buildings totaling 925,960 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 Holdings

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

12.0%

53,325,732 SF RICHMOND MISSOURI CITY

4,000,000 3,400,000

10.0%

2,800,000

8.0%

HLC OUTLOOK The Southwest submarket is located west of Interstate 610, bordered on the north by Interstate 10, and extends 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 9.0% at the end of 4Q 2021 which is an increase from the 8.8% vacancy rate in 3Q 2021. The vacancy rate increased due to the 716,986 SF of deliveries that occurred with only 561,640 SF of positive absorption during 4Q 2021. The submarket currently has 1,082,070 SF under construction. Overall, 2021 proved to be a record setting year for the Southwest submarket with 5,120,056 SF of positive absorption and 4,810,428 SF of deliveries over the calendar year. The most significant deliveries during 2021 were the two different Amazon build-to-suits totaling 1,931,292 SF located at 10507 SF Harlem Road and 2303 Hurricane Lane.

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 • • • • • • • • • •

Park 8Ninety 611 Highway 90A – 440,014 SF 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 Park 8Niney- 702 Cravens Road – 177,474 SF City Park Logistics Center | Building 2 – 176,319 SF Nova Logistics Park – 163,230 SF

2,200,000 6.0% 1,600,000 4.0%

1,000,000

2.0%

400,000

0.0%

(200,000) 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

4Q 21

Vacancy

vs. 12 Mths Ago

561,640

2,978,714

451,409

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.0%

8.8%

10.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

423,568

1,066,128

2,080,287

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,082,070

2,081,266

4,278,533

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

698,461

3,069,544

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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