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Increased shipping activity through Port Houston helps boost city’s industrial market

June 4, 2021

A surge in shipping activity going through the Port of Houston is expected to drive demand for industrial warehouse space in the coming years, according to a report from New York-based commercial real estate firm Newmark (Nasdaq: NMRK).

The report found that over the past five years, the Port of Houston has seen a 40% increase in 20-foot equivalent units, the industry standard for measuring shipping volume. The uptick in cargo going through Houston’s shipping channels was nearly double what other ports have seen over the same period.

On average, the TEU volume growth among the nation’s top ports stood at 18% over the past five years.

The nation’s busiest ports in Los Angeles-Long Beach and New York-New Jersey have struggled in recent years amid increasing congestion, limited warehouse supply and land constraints, forcing many shipping companies to find alternate routes to bring goods into and out of the United States.

While the inventory of warehouse/distribution space grew by an average of 10% over the past five years in Los Angeles-Long Beach and New York-New Jersey, it jumped by 17% on average in the rest of the port markets that Newmark evaluated.

During the first quarter of 2021, warehouse development as a share of inventory was more than twice as high in less-mature, less-dense port markets than it was in Los Angeles-Long Beach and New York-New Jersey.

The Port of Houston, meanwhile, boasts a market warehouse inventory of 478.5 million square feet — the third largest among major U.S. port markets, which has made the Bayou City attractive to shipping companies looking to avoid more crowded points of entry.

Although trade in and out of the Port of Houston took a hit last year due to Covid-19, the outlook for 2021 is brighter, according to a recent report from the Greater Houston Partnership. In the first quarter of 2021, container traffic through the Port of Houston increased 4.3% year over year. Containerized imports are up 24.5%, while containerized exports are down 13.4%, according to the report. Meanwhile, global demand for crude has rebounded, which is good news for the Port of Houston after much of last year's decline in local trade could be attributed to the decline in demand for fuels during the pandemic.

For Houston, the increased traffic through the city’s port system is a boon to what was already a strong market for industrial development.

Dallas-based CBRE (NYSE: CBRE) recently reported that during the first three months of 2021, the Houston industrial market experienced an uptick in activity from third-party logistics providers, following a 12-month run with e-commerce and supply chain companies.

Developers have already delivered nearly 2.7 million square feet of industrial space this year, while the market absorbed more than 4 million square feet. The industrial vacancy rate decreased for the second consecutive quarter, bringing it down to 6.5%, CBRE said.

Another report by Houston-based Transwestern found that Seattle-based Inc. (Nasdaq: AMZN) has accounted for 12% of all new industrial leasing activity in the Houston area.

During 2020 alone, Amazon triggered five of the top 10 industrial leases citywide for a combined total of 1.6 million square feet. In total, the e-commerce giant has executed leases at 16 Houston-area sites, spanning 6.6 million square feet of industrial space, Transwestern said.

By Jeff Jeffrey, Houston Business Journal