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Industrial Deals Near Port Houston Showcase Bright Spot in Pandemic Uncertainty

December 3, 2020

Four notable deals that recently closed in Houston’s southeast market show that logistics and distribution tenants are continuing to fuel growth in the area by the port despite the uncertainty of the pandemic.

Principal Real Estate Investors has found a tenant for a 784,000-square-foot industrial building at Bay Area Business Park in Pasadena, Texas, according to CoStar data and Stream Realty Partners, which brokered the deal. The tenant is Dunavant, a third-party logistics company that already has space in the park and is consolidating into one larger building, said Justin Robinson, who represents Principal Real Estate, the owner of Bay Area Business Park.

The Dunavant deal represents the largest publicly disclosed new industrial lease signed during the pandemic, according to CoStar data. Dunavant is moving out of Building 5 and Building 9 within the park and into Building 10 for a combined 180,000-square-foot net expansion in the park, Robinson said in an interview. John Nicholson with Colliers represented Dunavant in the deal.

Separately, another third-party logistics company, Crown Cartage, also inked a 160,000-square-foot lease within the Bay Area Business Park in Building 8, Robinson said. Michael Foreman with Cushman represented Crown in that deal.

Elsewhere in Pasadena, Triten Real Estate Partners signed a 102,863-square-foot lease with Frederick Trucking for bulk distribution space at Bayport North Logistics Center I at 9701 New Decade Drive, according to CBRE, which represented the landlord in the deal. Chris Haro with NAI Partners represented Frederick Trucking.And east of Pasadena in Deer Park, Triten Real Estate inked a 402,648-square-foot lease with an undisclosed e-commerce tenant in Underwood Port Logistics Center at 4600 Underwood Road, according to a statement from CBRE, which represented the landlord and the tenant. The tenant is Pioneer Technology, a logistics company that has the same address in Fontana, California, as Costway, an e-commerce company, according to Texas state records. State permitting documents also describe the project as “Pioneer.” That deal is the second-largest new industrial lease signed in the Houston area during the pandemic, according to CoStar data.

Will Hedges with Triten Real Estate said in both the Bayport North and Underwood Port deals, the tenants recognized the value of being located next to Port Houston, which is among the top 20 biggest ports globally by total tonnage, according to the Greater Houston Partnership.

Port Activity Starting to Improve

The deals are welcome news in the southeast Houston real estate market, where there is some concern that a pullback from petrochemical companies and slower port traffic earlier in the pandemic during the energy downturn could impact industrial demand.Although total revenue tonnage is down 5% at Port Houston through October, tonnage is improving from earlier in the pandemic and October saw strong activity as retailers stocked up for the holiday shopping season, according to Port Houston. October posted a record for monthly cargo activity, with 296,000 twenty-foot-equivalent container units passing through the port's docks.The port was the No. 1 port in the United States in terms of tonnage volume last year, with 285 million tons of cargo passing through its docks, according to a recent report cited by the port. The port is starting its long-anticipated channel-widening project early next year, which could support future growth.

Industrial deal volume is showing some signs of improvement by the port within the east-southeast market. In total, there have been 96 industrial leases signed in the east-southeast industrial market during the pandemic, only a slight drop from the 102 industrial leases signed during the same period last year, according to CoStar data. However, absorption still plummeted in the third quarter to negative 394,000 square feet because of major move-outs from tenants such as Packwell vacating 210,000 square feet at the Bayport North Industrial Park in Pasadena in September, according to CoStar analysts. However, overall absorption in the market is still positive 1.1 million square feet over the past 12 months, according to CoStar analysts.

On the sales side, there were 54 industrial buildings sold, not including raw land, in the market in that same time frame, compared to 69 sales transactions in the same period last year, according to CoStar data. Last quarter, more than 30 buildings traded in the market, on par with the number of transactions seen in the same period last year, according to CoStar analysts.However, the average deal size is down significantly because of national portfolio deals declining since the pandemic started, those same analysts said.

Still, industrial brokers in the Houston southeast market are hopeful that more deals are expected to cross the finish line by the end of the year.“There is a sense of urgency for deals that were delayed earlier in the year to get completed this year. For sellers, some of it is for tax reasons if the capital gains and tax policies that are currently in place, there is some concern that those could be changed with the new administration,” said Travis Land, a broker with NAI Partners.

Land is marketing about 32 acres for Pinpoint Commercial within the broader 51-acre Trinity Business Park, located at Farm-to-Market Road 2354 and Farm-to-Market Road 3180 in Chambers County. With proximity to the port and U.S. Highway 99, the site could accommodate a large cross-dock distribution building or multiple small freestanding buildings, he said.

Land said much of the recent lease deals in the southeast market have been shorter-term lease renewals, which have become more common throughout the area during the pandemic. But overall tours and other activity started picking up again in the summer, he said.

“I think for basically the second quarter the market as a whole, including the southeast, took a pause but we’ve really seen that start to return in a strong way” after the Fourth of July, Land said.Elsewhere in the southeast at another property being marketed by NAI Partners, Joel Michael said he’s continuing to see activity and interest in Cedar Port Industrial Park in Baytown. Hunt Southwest is building a 1.02 million-square-foot speculative industrial building in the park where Ikea and Walmart have industrial space.

“Cedar Port in the last two months has been very active. We’ve got multiple deals circling around. We have two under contract, two contracts out for signature and a couple" letters of intent. "So we’re busy,” Michael said.

For the Record

Bay Area Business Park is leased by Stream Realty’s Robinson and Jeff Pate. For the Triten Real Estate Partners deal, the landlord was represented by Joseph Smith, Patrick Rollins, Jason Dillee and Andrew Jewett of CBRE. Dedrik Pharis with CBRE’s Inland Empire, California, office represented the tenant at the Underwood Port Logistics Center. Chris Haro with NAI Partners represented Frederick Trucking.

By Marissa Luck, CoStar News