Market Brief...
Houston
INDUSTRIAL
2Q2020 Property Pictured Above: Northwest Distribution Center | 7150 Business Park Drive, Houston, Texas 77041
HOUSTON INDUSTRIAL MARKET BRIEF 2Q 2020
WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that customer service and professional expertise are two of the cornerstones to delivering great service to our clients in the real estate industry. In real estate, professional expertise is achieved largely by having excellent market knowledge. This month, you will receive several reports focusing on Houston’s industrial real estate. These reports will be filled with data and statistics, but will these numbers be the right numbers? Our market report stands apart because we track and analyze the data unlike most others. Our report contains only statistics for institutionalgrade, dock-high and semi-dock, distribution and flex buildings. Additionally, our report only tracks concrete tilt-wall and masonry buildings, which means all metal construction has been removed from our data set. While grade-level, metal, and manufacturing buildings play an important role in Houston’s industrial market, we believe they should be tracked separately from typical institutional-grade distribution 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 freeway. We believe submarkets should show a complete picture of the surrounding competitive set, so we created our own based not on arbitrary physical boundaries like roads or neighborhoods, but on which buildings actually compete against each other within a specific region of the Houston market. We hope you enjoy reading our report and find the information useful. If you have any questions, please don’t hesitate to call or email a member of our team.
Sincerely,
The HLC Houston Industrial Team
3
HOUSTON INDUSTRIAL MARKET BRIEF 2Q 2020
TABLE OF CONTENTS 1. HOUSTON INDUSTRIAL SUBMARKETS
1 2 3
2. OVERALL HOUSTON MARKET A. Industrial Trends & Transactions
B. Facts and Figures
2. SUBMARKET INTELLIGENCE A. Far West & Katy
B. C. D. E. F. G.
Northwest Houston North Houston Near East Houston Port Area South Houston Southwest Houston
5
HOUSTON HLC SUBMARKET COVERAGE
TOMBALL PRAIRIE VIEW
FAR NORTH 2,497,338 SF
SPRING
!"#"!"#$"%&&&
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
HUMBLE
NORTH 38,052,932 SF
LAKE HOUSTON
NORTHWEST 79,079,425 SF MONT BELVIEU
NEAR EAST 20,773,838 SF BROOKSHIRE
KATY
HOUSTON
SOUTHWEST 26,626,765 SF
FAR WEST/KATY 14,862,767 SF
PORT AREA 45,458,880 SF
CBD 1,495,961 SF
BAY TOWN
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
PASADENA LA PORTE HOBBY AIRPORT
SOUTH 21,154,465 SF
SUGAR LAND
ELLINGTON AIRPORT
RICHMOND
6
MISSOURI CITY
TRINITY BAY
HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above. PEARLAND
HLC HOU
INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK
INDUSTRIAL MARKET EXPERTS
Market-wide vacancy for distribution product ticked up slightly to 11.8% in 2Q 2020. Conversely, according to CoStar’s Market Analytics data, the vacancy rate for “specialized industrial” (i.e. manufacturing) buildings in Houston was only 3.7% at the close of 2Q 2020. The increase in Houston’s vacancy rate over the last several quarters is primarily due to the historic surge in speculative construction occurring market-wide. According to HLC research, more than 20M SF of new distribution space has been delivered over the last twelve months. The last two quarters have been particularly active, with approximately 13.8M SF of deliveries. These numbers outpace historical absorption by a wide margin, making the increase in the vacancy factor unavoidable. In addition to the historical levels of new construction, the COVID-19 pandemic has caused many companies to pause or delay real estate decisions. The HLC Houston team has experienced delays for several deals, both new deals and renewals, due to COVID-19. This is no doubt having an adverse effect on absorption. The good news is activity in the market remains strong. The Houston market will need to be patient as we work to absorb all of the new product that has come online recently (as well as the new construction still in the pipeline). However, we anticipate that some of the macroeconomic trends that are occurring nationwide will ultimately help industrial real estate in the long run and Houston will not be excluded from those tailwinds.
CRAIG BEAN
JOHN KRUSE
Senior Vice President Houston Industrial Leasing cbean@holtlunsford.com 713.602.3752
Senior Vice President Houston Industrial Leasing jkruse@holtlunsford.com 713.602.3756
TRENDS & TRANSACTIONS • The Port submarket has seen strong absorption numbers over the first half of 2020, with YTD absorption being over 2.5M SF so far. However, much like the market as a whole, this absorption number has not kept up with deliveries which total 3.6M SF in 2020 so far. • The investment sales market saw a significant decrease in activity during 2Q 2020 due to COVID-19 and low energy prices. We continue to see longer-term, credit-leased assets hit the market and investors seem to be comfortable with many of these deals, especially if there is little-to-no oil and gas exposure. However, value-added deals that include vacancy or credit risk have been less frequent in 2020. We expect that to change with several portfolios scheduled to hit the market in the second half of the year. • YTD net absorption stood at 5.6M SF at the close of 2Q 2020. This has us on pace to outperform the historical annual average of approximately 6.6M SF, going back ten years, by 170%. In the face of a
global pandemic and a distressed oil and gas industry, the strong absorption numbers speak to the resiliency of the Houston industrial market.
Absorption
KELLY LANDWERMEYER
CARTER HOLMES
Senior Vice President Houston Industrial Leasing klandwermeyer@holtlunsford.com 713.602.3762
Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751
vs. Prev. Qtr
vs. 12 Mths Ago
3,356,984
2,250,712
2,730,461
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
12.2%
11.5%
8.8%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
3,441,710
4,300,498
5,555,057
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
16,504,936
16,389,351
18,641,227
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
5,894,591
7,989,958
4,520,043
7
HLC HOU FACTS & FIGURES
Market
Existing Inventory
Vacancy
Total RBA
Direct SF
Total SF
Vac. %
73
14,862,767
1,631,599
1,651,926
11.1%
Northwest
804
79,079,425
9,214,516
9,752,444
12.3%
North
319
38,052,932
7,136,663
7,177,911
18.9%
Near East
169
20,773,838
1,974,268
8,000,000
12.0%
7,000,000
11.0%
6,000,000
10.0%
5,000,000
9.0%
4,000,000
8.0%
3,000,000
7.0%
2,000,000
6.0%
1,000,000
5.0%
0
4.0%
# Bldgs.
Far West/Katy
OVERALL HOU
13.0%
2,101,314
(1,000,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
1Q 19
2Q 19
3Q 19
4Q 19
1Q 20
Deliveries
Vacancy
VACANCY - OVERALL HOU 14.0% 12.2% 12.0% 11.8%
10.1%
Port
158
45,458,880
4,673,027
4,733,027
10.4%
South
222
21,154,465
2,018,452
2,018,452
9.5%
Southwest
263
26,626,765
2,761,722
2,848,207
10.7%
Far North
22
2,497,338
138,190
168,190
6.7%
CBD
21
1,495,961
270,819
207,819
13.9%
Totals
2,051
250,002,371
29,819,256
30,659,290
12.3%
2Q 20
10.0% 7.5%
8.0%
7.1%
6.0% 4.0% 2.0%
0.4%
0.4% 0.0%
2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Direct
1Q 19
2Q 19
3Q 19
4Q 19
1Q 20
Sublet
2Q 20
Total
ABSORPTION - OVERALL HOU 8,000,000 7,000,000 6,000,000 5,000,000
YTD Net Absorption
YTD Deliveries
Under Construction SF
YTD Leasing Activity
Far West/Katy
108,578
1,287,750
5,572,257
266,107
Northwest
195,644
2,720,662
1,445,226
2,627,242
North
1,037,045
2,937,446
3,778,667
1,219,986
Near East
(185,748)
176,201
0
645,503
Port
2,515,364
3,617,196
1,387,338
1,197,857
South
(280,809)
0
757,222
614,992
25,000,000
Southwest
436,670
977,594
2,219,016
640,620
20,000,000
Far North
880,230
860,000
145,210
166,810
15,000,000
CBD
0
0
0
0
10,000,000
Totals
4,706,974
12,576,849
16,504,936
7,379,117
5,000,000
Market
Source: CoStar
4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
2Q 19
Total Net
3Q 19
4Q 19
1Q 20
2Q 20
Leasing Activity
CONSTRUCTION - OVERALL HOU
0 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Delivered Inventory
8
1Q 19
1Q 19
2Q 19
3Q 19
4Q 19
1Q 20
Under Construction
2Q 20
SUBMARKET INTELLIGENCE FAR WEST & KATY
BROOKSHIRE
VITAL STATS
KATY
14.0%
14,862,767 SF
HLC OUTLOOK The Far West submarket follows along Interstate 10, stretches from Highway 6 out to Brookshire, and up and down the newly developed Grand Parkway. The submarket benefits from rapid population growth in West Houston, Katy and the surrounding communities. Additionally, the submarket’s location along Interstate 10, and proximity to San Antonio and Austin, make it an attractive location for new regional e-commerce distribution centers. Prominent tenants and users in this submarket include Medline, Goya Foods, Rooms-to-Go, Amazon, Costco, Academy Sports + Outdoors, and Igloo. Vacancy increased significantly to 11.1% in 2Q 2020 from 9.9% in 1Q 2020. The main reason is due to the 1,287,550 SF of new construction deliveries that occured YTD through 2Q 2020. The submarket has experienced positive absorption but only 108,578 SF YTD. However, we will need even stronger absorption in the coming quarters to prevent vacancy from increasing further. The 5,572,257 SF under construction at the end of 2Q 2020 in the Far West submarket is the most in the metro. It is important to note that several large build-tosuits such as Ross Dress For Less (2.1M SF) and Medline (1.3M SF) account for a large portion of the under construction projects. It will be important to watch whether the larger tenants and users in this submarket decide on a build-to-suit to accommodate future growth versus leasing additional space in speculative building projects.
NEW DEVELOPMENTS • • • • • •
Ross Dress For Less – a 2.1M SF build-to-suit development Medline – a 1.3M SF build-to-suit development Empire West Business Park (Phase 1) – a 1,036,057 SF project with Stream Realty Amazon | Duke Clay 99 – a 806K SF build-to-suit development The Uplands Twinwood DC 1 – a 737,630 SF project with Clay Development Jordan Ranch Distribution Center – a 494,550 SF project with Phelan-Bennett & WPT Reit • Clay 99 – a 433,200 SF project with Duke Realty • Cane Island Business Center – a 277,400 SF project with Insite Realty & Principal
LARGE EXISTING VACANCIES • • • •
Clay 99 Building Five – 433,200 SF Pederson Distribution Center – 205K SF First Grand Parkway | Grand Parkway Commerce Center | Building 1 – 173,045 SF First Grand Parkway | Grand Parkway Commerce Center | Building 2 – 141,833 SF
1,500,000 12.0%
1,300,000
10.0%
1,100,000
8.0%
900,000 700,000
6.0%
500,000 4.0% 300,000 2.0%
100,000
0.0%
(100,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
2Q 19
3Q 19
4Q 19
Deliveries
vs. Prev. Qtr
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
9,000
99,578
22,294
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
11.1%
9.9%
6.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
149,881
116,226
155,379
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
5,572,257
4,536,200
1,353,669
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
205,200
1,082,550
Source: CoStar
9
SUBMARKET INTELLIGENCE NORTHWEST HOUSTON
SPRING
GEORGE BUSH INTERCONTINENTAL AIRPORT
VITAL STATS
14.0%
HUMBLE
CYPRESS
1,900,000
13.0% 1,400,000
12.0% 11.0%
79,079,425 SF
900,000
10.0% 400,000
9.0% 8.0%
-100,000
7.0% -600,000
6.0% 5.0%
-1,100,000
4.0% 3.0%
-1,600,000 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
Absorption
Absorption
4Q 18
1Q 19
Deliveries
vs. Prev. Qtr
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
48,506
147,138
(49,499)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
12.3%
11.4%
11.4%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
1,234,311
1,392,931
2,671,665
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,315,243
484,441
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,818,027
126,250 Source: CoStar
10
HOUSTON
HLC OUTLOOK With more than 79M SF of existing distribution/flex product, the Northwest submarket is far and away the largest of the seven major submarkets in Houston. Geographically located north of Interstate 10 along the Highway 290 and West Sam Houston Parkway corridors, the submarket has historically offered somewhat of a “main and main” location for distribution tenants needing to be close to the regional population center. Businesses centered around e-commerce, building supplies, and household services such as plumbing and HVAC repair are all common in Northwest Houston. The vacancy rate in the Northwest submarket ticked up slightly to 12.3% during 2Q 2020. This increase in vacancy can be attributed to the almost 1M SF of new deliveries, most of which is not pre-leased, coupled with a meager 48,506 SF of net absorption. It has been a relatively weak year so far for the Northwest submarket in terms of absorption, with only 195,644 SF YTD. New construction has stalled, relatively speaking, during the first half of 2020 in Northwest Houston. While there have been a couple of new projects announced, it appears that there is less of an appetite for developers to go “spec” at the moment. We will need to see much higher absorption numbers in the coming quarters to avoid Northwest looking like the North submarket in terms of vacancy. Some notable transactions that took place in 2Q 2020 were Molto Properties selling its 290 Northwest Business Center and Crow Holdings Industrial selling Buildings 1 and 2 at Highland Grove Industrial Park.
NEW DEVELOPMENTS
1,445,226 902,635
KATY
• Sam Houston Distribution Center – an 833,720 SF project with Transwestern • 249 Business Park – an 806,360 SF project with Panattoni • Telge 290 Logistics Center – a 207,635 SF project with USAA, Archway, and Ridgeline • Windfern Northwest Distribution Center – a 179,200 SF project with Phelan-Bennett Development and GID
LARGE EXISTING VACANCIES • • • • •
9800 Derrington Road – 368,467 SF 3480 W 11th Street – 279,400 SF 4414 Hollister Road – 234,215 SF 10610 Telge Road – 203,060 SF 12202 Cutten Road – 194,602 SF
SUBMARKET INTELLIGENCE NORTH HOUSTON
TOMBALL
SPRING
GEORGE BUSH INTERCONTINENTAL AIRPORT
VITAL STATS
HUMBLE
LAKE HOUSTON
38,052,932 SF
20.0% 2,600,000
18.0%
2,100,000
16.0% HOUSTON
HLC OUTLOOK The North submarket is defined as the area between Veterans Memorial Drive to the west and Highway 59/ Interstate 69 to the east, moving north from Loop 610 all the way to Montgomery County. The 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.
14.0%
1,600,000
12.0%
1,100,000
10.0%
600,000
8.0%
100,000
6.0%
The North has changed drastically over the last year. As an example, the vacancy rate sat at just 8.1% at the close of 2Q 2019. Since then, just over 6M SF of new product has been delivered, almost all of it spec construction. Even the rosiest of projections couldn’t have foreseen all, or most, of this new space being absorbed quickly. To be sure, it will take some time to revert back to a vacancy factor below double-digits. Projects that are flexible in terms of suite size offerings will have more success than larger projects that have to rely on 100K SF plus tenants for leasing deals.
(400,000) 2Q 17
So far during 2020, 2.7M SF of new distribution product has been delivered in the North submarket. The North has seen the second highest absorption of any submarket in Houston over the first half of the year, at 1,037,045 SF, trailing only the Port. Vacancy ticked up slightly to 18.9% during 2Q 2020, the highest of any submarket.
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
Deliveries
vs. Prev. Qtr
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
275,077
761,968
1,739,186
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
Among the large speculative projects currently on the ground and vacant are USAA’s 685,400 SF Air 59 Logistics Center, Davis Commercial Development’s two (2) building, 515,780 SF Cypress Preserve Logistics Center, Clay Development’s 524,160 SF Kennedy Greens Distribution Center, IDI Logistics’ 351,400 SF North Houston Logistics Center Building G, Duke Realty’s 337,700 SF Point North Three, and Avera’s 242,760 SF Park 8.
18.9%
18.8%
8.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
444,187
775,799
669,796
NEW DEVELOPMENTS
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
• Interwood Distribution Center – a 341,692 SF project with Holt Lunsford Commercial Investments and GID • Parc 59 – a 279,500 SF project with Jackson Shaw and Thackery • Ella West Crossing – a 221,393 SF project with USAA and Seefried
LARGE EXISTING VACANCIES • • • •
Air 59 Logistics Center – 685,400 SF Cypress Preserve Logistics Center | Buildings 1 & 2 – 516K SF North Houston Logistics Center | 30 Esplanade Boulevard – 351,400 SF Park 8 | 11945 North Freeway – 242,760 SF
3,778,667
4,174,056
5,353,339
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
366,486
2,570,960
1,717,858 Source: CoStar
11
SUBMARKET INTELLIGENCE NEAR EAST HOUSTON
VITAL STATS
20,773,838 SF
12.0%
HOUSTON 500,000
10.0% 300,000
SHIP CHANNEL
8.0% 100,000 6.0% MEDICAL CENTER
(100,000)
4.0%
(300,000)
2.0%
0.0%
(500,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
Absorption
Absorption
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Deliveries
vs. Prev. Qtr
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
(86,056)
(99,692)
(276,894)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.1%
9.7%
9.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
298,330
347,173
846,857
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
526,094
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
44,000
176,201
Source: CoStar
12
PASADENA
HLC OUTLOOK The majority of institutional-grade product in the Near East submarket was constructed during the 1970s and 1980s. With limited new construction since that time, 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. Its widespread rail infrastructure and proximity to the Port of Houston made it the preferred submarket for plastic resin repackagers, though that has diminished in recent years in favor of the Port submarket. This submarket has evolved significantly since 2015. Due to tight market conditions with vacancy rates under 3%, second generation rents increased to historically high levels. While still a value option for tenants, the discount compared to other Houston submarkets and to new construction is significantly less than what it was in the past. This has led to many tenants vacating the Near East submarket in favor of alternative submarkets, most notably the Port submarket. Though rents for newer product in the Port submarket are higher, those costs are offset by lower drainage expenses, more efficient footprints, and, in the case of resin repackagers, improved rail infrastructure. Over the past four years, the submarket has experienced more quarters with negative absorption than positive despite limited delivery of new product. The vacancy rate at the end of 2Q 2020 was just over 10%. The 10-year trailing average vacancy rate for the submarket is just over 5%. Despite some leasing gains during the quarter, the vacancy rate increased largely due to the delivery of 176,201 SF of spec product and a tenant relocation to a competing submarket. tWith no new supply in the pipeline, the Near East submarket should remain relatively stable for the remainder of 2020 albeit at an elevated vacancy rate. There are some known or anticipated move-outs for the second half of the year, but modest new leasing should keep supply and demand in relative balance.
LARGE EXISTING VACANCIES • • • • •
8230 Stedman Street – 526,094 SF 8550A Market Street – 229,500 SF 8404 East Freeway – 176,201 SF 8786 Wallisville Road – 137,368 SF 200 Portwall – 110K SF
SUBMARKET INTELLIGENCE PORT AREA
MONT BELVIEU
HOUSTON
45,458,880 SF
VITAL STATS
BAY TOWN
SHIP CHANNEL
GALLERIA
12.0%
PASADENA
MEDICAL CENTER
3,000,000
LA PORTE HOBBY AIRPORT
2,500,000
10.0% ELLINGTON AIRPORT
2,000,000
TRINITY BAY
8.0% PEARLAND
1,500,000
HLC OUTLOOK
6.0%
The Port submarket is strategically located in close proximity to the Port of Houston’s container terminals, extensive network of refineries and downstream chemical plants, and a widespread multi-modal transportation infrastructure including rail. The submarket allows for quick access to both the Barbours Cut and Bayport container terminals where container shipments enter and exit the Houston market.
1,000,000 4.0%
500,000
2.0%
0
0.0%
As anticipated, the vacancy rate in the Port submarket continued to increase and ended the quarter over 10% as deliveries again outpaced demand. During the first half of 2020, approximately 3.5M SF of product was delivered. In 2018 and 2019, this submarket averaged just under 3.3M SF in absorption each year. In the past eight quarters, absorption has lagged deliveries in six quarters, with the remaining two quarters flat. Looking forward, market conditions should stabilize and may even improve by year-end depending on absorption trends. The new development pipeline continues to cool off with approximately 1.4M SF scheduled to deliver before year-end. Additionally, absorption was strong during the first half of 2020. If absorption is close to or keeps pace with the first half of 2020 for the remainder of the year, the vacancy rate would be back in single digits by year-end.
NEW DEVELOPMENTS • Monument Business Park – a 609,510 two (2) building project with Molto Properties • Market Street – a 395,725 two (2) building project with National Properties Holdings
LARGE EXISTING VACANCIES • • • • • • • •
10629 Red Bluff – 784K SF 4725 E Grand Parkway South – 644K SF 10591 Red Bluff Road – 642,994 SF 4600 Underwood Road – 402,648 SF 5335 Cedar Port parkway – 352,559 SF 10611 Red Bluff Road – 297,400 SF 13031 Bay Area Boulevard – 296,400 SF 1770 East Freeway – 260,148 SF
(500,000) 2Q 17
The Port submarket is young compared to other submarkets with much of the stock constructed in the last 15 years and propelled by the opening of the Bayport Container Terminal. Drivers for the submarket include third party logistics providers (plastic resin repackagers in particular), downstream energy service providers, and retail (ex. Walmart, Home Depot, IKEA).
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
Deliveries
vs. Prev. Qtr
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
1,380,116
1,135,248
1,424,302
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.4%
8.7%
7.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
567,562
630,295
545,019
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,387,338
1,942,267
1,561,317
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,360,270
1,256,926
1,533,376 Source: CoStar
13
SUBMARKET INTELLIGENCE SOUTH HOUSTON
HOUSTON SHIP CHANNEL
GALLERIA
VITAL STATS
PASADENA
MEDICAL CENTER
10.0%
200,000
21,154,465 SF
HOBBY AIRPORT
100,000 8.0% ELLINGTON AIRPORT
0 MISSOURI CITY
6.0%
(100,000)
(200,000) 4.0% (300,000)
2.0%
(400,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
Absorption
Absorption
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Deliveries
vs. Prev. Qtr
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
(228,388)
(52,421)
(341,635)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
9.5%
8.5%
7.4%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
163,201
451,791
185,479
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
HLC OUTLOOK The South submarket benefits from its proximity to Houston’s Medical Center, just south of downtown, and is defined by a high volume of flex buildings designed to service the wide range of health care providers within the Medical Center. Geographically, the submarket stretches from just north of Loop 610 south to Beltway 8. With more than 21M SF of product, the South submarket is the fifth smallest of the nine major submarkets HLC tracks in Houston. Large portions of this area have not yet been developed, making this submarket potentially the least land-constrained. However, due to the lack of population growth relative to the western submarkets, there has not been a strong demand for new development in this area. At the close of 2Q 2020, vacancy was 9.5% in the South submarket which was an increase from 8.5% at the end of 1Q 2020. Absorption YTD through 2Q 2020 was a negative 280,809 SF which is typical in this slower deal velocity submarket that has only posted positive quarterly absorption on two separate occasions in the last three years. The South submarket continues to feel the effects of the negative 693,343 SF of absorption that occurred during the 2019 calendar year due to several key tenants vacating space, such as Grocers Supply which relocated to the North Submarket. There has been no new construction deliveries YTD through 2Q 2020. However, this is expected to change in the upcoming quarters upon completion of South Belt Central, Amazon build-to-suit at South Point Business Park and Corporate Center Fannin.
NEW DEVELOPMENTS
757,222 -
PEARLAND
• South Belt Central | Phase I – a 436,569 SF project with IDV • South Point Business Park | Phase II (Amazon BTS) – a +/- 200K SF project with National Property Holdings • Corporate Center Fannin – a 151,342 SF project with Summit Realty Group
Source: CoStar
LARGE EXISTING VACANCIES • 5055 South Loop Freeway – 223,400 SF • 3110 Corder Street – 109,500 SF
14
SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON HOUSTON
26,618,387 SF GALLERIA
VITAL STATS
MEDICAL CENTER
12.0%
1,200,000
11.0% SUGAR LAND
1,000,000
10.0% 9.0%
HLC OUTLOOK
RICHMOND
7.0%
Vacancy was 10.7% at the close of 2Q 2020 which is a slight decrease from 11.0% vacancy rate at the end of 1Q 2020. The 10.7% vacancy is largely due to the 997,594 SF of new construction deliveries that occured YTD through 2Q 2020 in the submarket. Positive absorption of 433,721 SF YTD through 2Q 2020 assisted in the slight quarter to quarter vacancy decrease. However, the 2,219,016 SF under construction in the submarket at the close of 2Q 2020 will continue to present challenges to absorption and vacancy in the upcoming quarters.
• BLVD Oak Business Park Phase II – a 986,480 SF project with Hines and TA Realty • Waypoint Business Park – a 708,944 SF project with 4M Investments and Clarion • City Park Logistics Center – a 438,202 SF project with Logistics Property Co. • Stafford Crossing – a 334,200 SF project with Transwestern and AEW • Sugar Land Crossroads – a 326,807 SF project with Transwestern and Diamond Realty Investments • Nova Logistics Park – a 299,727 SF project with Lovett Commercial
LARGE EXISTING VACANCIES • • • •
611 Cravens Road – 477,355 SF 1111-1113 Gillingham – 266,663 SF 1407 Gillingham – 166,970 SF 10631 Corporate Drive – 153K SF
600,000
6.0%
The Southwest submarket encompasses most of Southwest Houston outside of Loop 610, stretching from the Westchase area to the north, all the way south to the cities of Stafford and Sugar Land located in Fort Bend County. The submarket has seen steady growth in new construction over the last several years and it continues to increase with new speculative projects breaking ground. The business-friendly local governments in Fort Bend County and available Triple Freeport Tax Exemption are two big reasons why we’ve seen so much activity in the Southwest submarket. Furthermore, the labor demographics in the area are excellent and rapid population growth, which has been the norm for over a decade in Fort Bend County, is expected to continue in this region.
NEW DEVELOPMENTS
800,000
8.0%
MISSOURI CITY
400,000
5.0% 4.0%
200,000
3.0% 2.0%
0
1.0% 0.0%
(200,000) 2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
Absorption
Absorption
4Q 18
1Q 19
Deliveries
vs. Prev. Qtr
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Vacancy
vs. 12 Mths Ago
90,406
343,315
134,998
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.7%
11.0%
7.2%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
376,953
263,667
453,621
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,114,586
2,410,243
1,335,292
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
977,594
980,559 Source: CoStar
15
DALLAS
5950 Berkshire Lane Suite 900 Dallas, Texas 75225 T 972.241.8300 F 972.241.7955
FORT WORTH
1200 Summit Avenue Suite 300 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017
www.holtlunsford.com
HOUSTON
11451 Katy Freeway Suite 300 Houston, Texas 77079 T 713.850.8500 F 713.850.8550