By Doug Derrick, SIOR, managing broker, NAI El Paso
The remarkable pace and volume of industrial growth that has defined the major markets of Texas over the past decade is making its way to El Paso, as evidenced by larger projects for marquee tenants and elevated levels of institutional capital targeting the market.
The COVID-19 pandemic has boosted the appeal of industrial assets of all varieties, crowding the space with capital sources, driving up prices and creating lower yields on new investments. This holds especially true in high-growth markets like Dallas and Austin, which is why institutional investors are beginning to target secondary markets like El Paso, where assets can be acquired at lower prices.
Doug Derrick, NAI El Paso
El Paso is experiencing the same growth in e-commerce and online shopping as the rest of the country. This market also continues to benefit from international trade and manufacturing across the border, adding another unique form of demand for developers and owners in our border town.
Over the past decade, the volume of El Paso’s exports has doubled, with much of those goods flowing to Mexico. We expect to see manufacturers continue to locate operations in markets other than China, which should increase demand for third-party logistics (3PL) space in border markets like El Paso.
One of the largest industrial leases that was executed toward the end of 2020 — a 124,000-square-foot, full-building lease by an undisclosed 3PL firm at 9541 Joe Rodriguez Drive — reflects that trend. NAI El Paso represented the tenant in that deal.
The marketwide industrial vacancy rate stood at approximately 6 percent at the end of the first quarter, down from 6.5 percent at this time last year. Base industrial asking rents average between $4.10 and $4.50 per square foot, according to CoStar Group. However, we are also seeing asking rents in excess of $6 per square foot for new construction. These figures reflect stronger demand hitting this very tight market over the past 12 to 15 months.
With demand from users and institutional investors on the rise, the El Paso industrial market is finally starting to see the type large-scale developments and absorption from high-credit tenants that ultimately elevate the perception of the market on a national level.
Project Examples
No market can achieve that type of recognition without a commitment from Amazon, which is why the Seattle-based e-commerce giant’s decision to open a fulfillment center on the city’s east side is such a big deal.
As is the case with most of its real estate deals, Amazon is closely guarding the specifics of its new facility. However, local industrial brokers and developers note that the site can easily support a building of 1 million square feet or more. Regardless of its size, however, the new facility is guaranteed to bring hundreds of new jobs to El Paso.
Other large industrial projects have either been announced or are now under construction as well. Dallas-based Hunt Southwest is developing a 370,000-square-foot speculative industrial project. Kansas City-based VanTrust Real Estate is also proceeding with a nearly 1 million-square-foot spec industrial project in southeast El Paso and is rumored to have another 40-acre site under contract on the northwest side.
While all the aforementioned projects are being developed on spec, El Paso has also landed a key build-to-suit deal with a well-known tenant, which is equally important in boosting the perceived prestige of the El Paso industrial market.
Massachusetts-based TJX Cos., which operates T.J. Maxx, Marshalls and HomeGoods, is also planning a 1.7 million-square-foot distribution center on land owned by El Paso International Airport.
The development of that facility represents a capital investment of roughly $150 million. Rumor has it that TJX Cos. will follow the first phase of its new project with a 346,000-square-foot expansionary phase, bringing the retail operator’s total footprint in the region to more than 2 million square feet.
With ample land for new development, the airport submarket continues to play a key role in fueling industrial growth.
These sites can support every type of industrial use, from manufacturing to logistics, and offer a range of infrastructural options to users looking to service the local, regional and international customer bases.
With the growth of the industrial user base around the airport, ancillary real estate projects have also begun to pop up. Offices, hotels and restaurants now dot the area to support the needs of the labor force.
— This article originally appeared in the April issue of Texas Real Estate Business magazine.