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Houston a top-10 market as industrial real estate is seeing record year

December 5, 2021

Greater Houston ranks among the top 10 U.S. markets for industrial real estate inventory and space under construction as the sector keeps booming, according to new reports from commercial real estate firms.

As of the fourth quarter of 2021, Houston had 19.7 million square feet of industrial real estate under construction, with half of that already claimed by tenants, according to Houston-based NAI Partners' report, which includes Houston, Austin and San Antonio.

With more than 22 million square feet of net absorption in Houston so far this year, 2021 is already a record year for demand, the report states.

In the third quarter, Houston's industrial vacancy dropped to 8.6% and average asking rent rose to 50 cents monthly per square foot, according to Chicago-based JLL's report. John Talhelm, a senior vice president at JLL, said he doesn’t expect the market to slow down anytime soon.

“There's a lot of activity in the market,” he said. “There's a lot of prospective tenants in the market, and there's a lot of new construction in the market, with the majority of that being built in and around what we refer to as build-to-suit projects — large, special-built industrial buildings for single-tenant use.”

The demand is driven by growth in e-commerce, population growth and increasing global energy demand as many economies start recovering from the worst of the pandemic, commercial real estate experts say.

Much of the industrial growth is happening in areas around the Port of Houston, which account for 30% of industrial spaces over 10,000 square feet under construction in Houston, according to NAI Partners.

The largest being built right now is a 1.5 million-square-foot warehouse for Floor & Décor in the Baytown-area TGS Cedar Port Industrial Park, the largest master-planned rail- and barge-served industrial park in the United States.

But the growth is happening across the Houston area.

“The location of those warehouses is driven more by supply chain and logistics than being right at the port,” Talhelm said. “We see a pretty even distribution of the facilities in the nine submarkets that we track.”

Industrial activity is high at Houston-based McCord Development's 4,200-acre mixed-use development Generation Park, for example.

John Flournoy, director of sales and leasing for McCord, said activity is the best it's been since launching Generation Park in northeast Houston in 2012, with about 250 acres of land committed to industrial tenants this year.

“As the supply chain model continues to migrate to last-mile/same-day fulfillment, our location on Beltway 8 puts our prospects closer to the consumer than sites on the outskirts of town,” Flournoy said in an email, adding that access to workforce also helps for the new large fulfillment centers.

Talhelm said Houston is a unique market due to its sheer size, which bodes well for increased growth but also presents some challenges.

“With the activity that's going on and the continued growth in population, there are some challenges ahead of us, (such as) locating land sites that will support these larger buildings and still have the infrastructure and the road systems in place to handle the increased truck traffic,” he said.

By Florian Martin, Houston Business Journal