Houston Industrial & Warehouse Real Estate
Industrial Property Sales, Industrial Property Lease, Industrial Property Development, Industrial Warehouse Space Lease & Sales
Black Label Commercial Group has focused on the Houston industrial market for over a decade. During this time period, the market has undergone many changes. The layout of developments, building heights, power requirements, land costs, construction costs, and countless other factors have completely changed. Industrial development has gone from the least attractive commercial asset to being the target of some of the largest investment funds and developers in the country.
Black Label Commercial Group has noticed a rapidly increased appetite from both users and investors since the beginning of the pandemic. A combination of factors has led to an unprecedented amount of demand and low vacancy rates. Black Label has worked with a large number of companies relocating from California and Canada over the last 18 months.
Reasons for businesses moving to Houston, Texas has fewer regulations getting approval for lower new construction costs, lower land prices, great infrastructure, large labor pool, and low restrictive mandates related to the pandemic.
Houston Industrial Properties Sales & Lease Prices Are Increasing
Combining the outside companies moving to Houston with the local companies looking to expand the demand has greatly outpaced supply. Many developers held off on new developments during uncertain times. While developers waited to see what would happen the prices for construction material increased at a record rate along with the price of land. Meanwhile, lease rates and sales prices for end-users have lagged causing more pause among developers.
As of December 2021, the developers that Black Label works with have started moving full speed ahead with new projects. Tenants seem to be understanding that the prices of pre-pandemic are gone and if they need new buildings in the next few years the rates are going up.
The following is a good overview of today’s industrial market conditions:
Houston Industrial Real Estate Market
Per an article published on Bisnow: While Houston’s office market is suffering vacancy rates since the 1980s, the city is setting records in the opposite direction when it comes to industrial properties.
Leasing volume in the sector climbed to 10M SF in the third quarter for a total of 31M SF so far this year, according to the latest JLL report. Vacancy fell to 8.6%, decreasing for the third quarter running. And net absorption for the three-month period hit 9.5M SF — a figure that matches the average square footage absorbed in an entire year over the past 10 years, according to Rachel Alexander, JLL Houston’s senior vice president of research.
“The Houston industrial market is experiencing dynamic and healthy growth on multiple fronts,” Alexander said in the report, adding that she expects vacancy to drop to the high-7% range by the end of 2021. “[Tenants-in-the-market] activity indicates that occupier demand will likely remain at above-average levels, helping set a new high watermark for annual occupancy gains in 2021.”
Among the biggest new leases were pet supplier Chewy.com’s 690K SF deal at Northpoint 90 Logistics Center and a 629K location at Prologis Presidents Park for an unnamed e-commerce user. The quarter also saw some high-profile move-ins, including Lowe’s 1.5M SF build-to-suit property in New Caney, 1.9M SF between two projects for an e-commerce company in the Southwest submarket, and 1.3M SF for Home Depot in two buildings in the North and Northwest submarkets.
Demand for industrial space is outpacing supply in 2021 after several years of oversupply, the report said — a situation likely to continue through the end of the year thanks to a 15.5% decrease in construction activity due in large part to higher materials costs and supply chain issues creating building delays. Of the 8.1M SF of new deliveries during the quarter, 83.2% were pre-leased. That appetite for new construction, combined with a general flight to quality, is pushing up asking rents across the metro, JLL said.”
There are countless articles echoing the same sentiment and there does not appear to be a bubble or cliff on the horizon. The hesitancy to start new developments and fear of supply shortages are in the rearview for most industrial players. Black Labels developers have successfully worked through the issues brought about over the last few years and are extremely optimistic about the overall health of the Houston and Texas economies.
Houston Industrial Market Is Growing Rapidly
We at Black Label Commercial Group continue to be bullish on the Houston and overall Texas industrial markets. There are no indications of over-development or unsustainable valuations that housing markets saw in the run-up to the 2008 financial crisis. Warehousing seemed to be the only sector in the commercial real estate industry that did not see any retraction or other negative consequences. Companies both domestically and internationally view Texas as a business-friendly, pro-growth environment that they want to be a part of.
Companies both domestically and internationally view Texas as a business-friendly, pro-growth environment that they want to be a part of.