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Houston’s industrial market continues to surge as online shopping drives need for warehouse space

April 14, 2021

Houston’s booming industrial market appears poised to maintain its momentum this year as leasing volume continues to rise.

Recent reports by Dallas-based CBRE (NYSE: CBRE) and Chicago-based JLL (NYSE: JLL) found that the number of leases during the first quarter of 2021 continued to outstrip other recent quarters.

JLL reported that during the first three months of the year, industrialeasing activity totaled a strong 6.7 million square feet, well above the five-year quarterly average of 5.8 million square feet.

“With 2020 in the rearview mirror, occupiers are actively out in the market, many seeking first-generation space where they can realize efficiencies,” JLL said in a recent report on the city’s industrial market.

CBRE’s recent quarterly report said that as net absorption continues to rise, Houston’s industrial vacancy rate has slid to just 6.5%. In all, the market absorbed 4.02 million square feet of space during the first three months of 2021, CBRE said.

CBRE said that the surge in demand for online delivery services throughout the Covid-19 coronavirus pandemic helped drive the need for warehouse and distribution center space. During the first quarter, the Houston industrial market also experienced an uptick in activity from third-party logistics providers, CBRE said.

And the level of leasing activity isn’t expected to slow down anytime soon.

Jll said industrial vacancy has likely reached the peak of the cycle, and “both owners and occupiers are executing deals confidently in the market, as evidenced by continued strong leasing and construction activity.”

JLL added that the market is expected to remain tenant favorable for another 12 months. Supporting that idea is the amount of new industrial space coming to market.

Just last quarter, Houston saw three projects break ground that were larger than 1 million square feet.

Mooresville, North Carolina-based Lowes (NYSE: LOW) broke ground on a 1.5 million-square-foot regional distribution center in New Caney that is expected to be the largest industrial building in all of Montgomery County.

The regional distribution center is expected to open in July 2021 and employ about 200 people.

In February, Atlanta-based Floor & Décor (NYSE: FND) acquired nearly 100 acres near Baytown with plans to build a 1.5 million-square-foot distribution center, which will service the south-central United States. The company wants to be able to move into the facility by the end of the year.

The property is located within the massive TGS Cedar Port Industrial Park, on the corner of Cedar Port Parkway and Fisher Road.

Finally, JLL reported that an unnamed e-commerce company broke ground on a 1.1 million-square-foot distribution center in the southwest submarket.

CBRE reported that 18.9 million square feet of space is currently under construction in the greater Houston area, about two-thirds of which is already pre-leased.

That said, the pace of construction activity is expected to slow down as 2021 progresses.

According to the 2021 Industrial Pipeline Report from CommercialSearch, Houston is expected to add 10.3 million square feet of new industrial space in 2021, putting the Bayou City at No. 10 on the firm’s list of metro areas with the most industrial deliveries.

However, developers are expected to slow construction by 41% compared to last year, when saw 17.5 million square feet of new industrial space was delivered.

As CommercialSearch put it: “The city has been hit hard by the recent collapse in oil prices — made even worse when they went negative last year. And, while logistics are important, market share seems to be bleeding to Austin and Dallas."

By Jeff Jeffrey, Houston Business Journal