Speculative development and e-commerce tenant demands are driving forces in Dallas and Houston’s industrial markets.
By Brian Lee
The biggest developments in the biggest state in the lower 48 are making big news: industrial business parks in Texas’ top markets continue to show strong development and leasing activity.
Cushman & Wakefield shared a “very encouraging” industrial outlook on the Dallas-Fort Worth metro area. With slightly less than 24 million square feet of absorption in 2016, market demand continues to outpace supply, which included 22 million square feet of new construction last year. PwC and Urban Land Institute ranked the metro second nationally for real estate prospects in 2017 and fulfillment centers No. 1 in both the development and investment categories, ahead of 23 other property types.
“The evolution of the e-commerce sector continues to shape the industrial market as a whole,” says Adam Hammack, senior director of Industrial Agency Leasing in Cushman & Wakefield’s Dallas office.
Site selection factors for large e-commerce users comprise fresh building functionality, modern infrastructure and the ability to attract and retain labor, which includes nearby transit and retail options for industrial park personnel, according to Hammack.
Focusing on the effects of the energy downturn doesn’t tell the whole story in Houston. Yes, the Space City office market has been hit hard, but the industrial sector, which consists of more than 530 million square feet of space, has remained “very strong” with a 5.6 percent vacancy rate overall at the end of 2016, according to Colliers International.
Dallas and Houston at 9.3 million square feet ranked second and seventh, respectively, in the nation in total net industrial absorption in 2016, Colliers reported. Houston matched the national “historic low” vacancy rate average of 5.6percent with Dallas posting 6.5 percent.
Adam Hammack, Cushman & Wakefield
The overall strength of the Interstate 45 industrial markets has supported strong business park development and leasing activity in those metros. Texas Real Estate Business highlights several industrial business parks in the state’s top two markets, which are also top five metropolitan areas nationally by population.
Southport Logistics Park in Wilmer
There’s a big opening this month near the Big D as Port Logistics Realty (PLR) completes a 1.1 million-square-foot, Class A industrial property across Interstate 45 from the Union Pacific Dallas Intermodal Terminal in Wilmer.
“In 2017, there will only be two 1 million-square-foot speculative distribution facilities delivered in the entire Dallas-Fort Worth Metroplex, and one of them is at Southport Logistics Park,” says Rob Huthnance, president of PLR Development.
Phase I of the 531-acre Southport Logistics Park in the South Dallas submarket will comprise five buildings totaling more than 3.8 million square feet. At full build-out, the master-planned park, a joint venture between PLR and Diamond Realty Investments (DRI), a wholly owned subsidiary of Mitsubishi Corp., will offer up to nine new distribution and e-commerce facilities ranging in size from approximately 400,000 to 1.5 million square feet.
“Southport offers a unique opportunity for e-commerce users looking for large, high-quality distribution space in one of the fastest-growing logistics locations in the country,” says Huthnance. “Southport’s prime logistics location in southern Dallas County — specifically its proximity to Union Pacific’s Dallas Intermodal Terminal and the third largest FedEx hub in the United States — offers a tremendous advantage to logistics and e-commerce users.”
The park will accommodate a total of 9 million square feet of industrial space. The second building in Phase I, a 400,000-square-foot facility, is under construction and slated for completion in the second quarter of this year. PLR’s president says the company is beginning to pursue build-to-suit opportunities on the remaining land, which is fully entitled and infrastructure-ready.
“On top of the cutting-edge design elements and modern amenities to support efficient distribution operations, we invested in an infrastructure project that is unparalleled in scope and quality in this submarket,” says Huthnance. “The industrial market in South Dallas is booming, but there isn’t another park in the area that offers the combination of institutional-quality park infrastructure and large Class A facilities.”
Park 20/360 in Arlington
Located between Dallas and Fort Worth, Park 20/360 will deliver approximately 1.3 million square feet of speculative industrial space this year and more than 1.6 million square feet total. Tenants will leverage not only the efficiencies of the modern, multifaceted development, but also the Triple Freeport Tax Exemption zone (i.e., property tax exemptions on inventory) and the many logistical benefits that a top five metro area offers.
Park 20/360, a collaboration between Ridge Development and global investment management firm Invesco in Arlington, Texas, will deliver approximately 1.26 million square feet of speculative industrial space in fourth quarter.
“Situated at the northwest corner of Interstate 20 and State Highway 360 and feeding into the Great Southwest Industrial District, Park 20/360 offers an extraordinarily unique access point for consumers and tenants alike,” says Kent Newsom, executive vice president of Ridge Development.
Ridge, the industrial arm of Transwestern Development Co., teamed up with global investment management firm Invesco on the Arlington project, which is well-positioned in the more than 100 million-square-foot Great Southwest Industrial submarket, one of the largest individually platted industrial districts in the country, according to Newsom.
The four-building Phase I will deliver in the fourth quarter and the four-building Phase II containing 361,440 square feet is scheduled to deliver in fourth-quarter 2018. The park offers three types of space — bulk distribution, warehouse and flex — to accommodate a range of industrial users.
Newsom reports strong preliminary leasing activity at Park 20/360 as prospective tenants learn about the firm focus on the end user by the ownership entity, Park 20/360 Investors LLC.
“A major aspect of this focus is constructing a park that utilizes sustainable initiatives while reducing overall operational expenses,” says Newsom. “Building 1, totaling 722,733 square feet, is expected to qualify for a LEED certification. To reduce costs, Park 20/360 Investors has also made the decision to bring on line two existing water wells, thereby using ground water to irrigate all property landscaping.”
Newsom emphasizes easy access, inside and out of the development — “efficient and hassle-free.” Park 20/360 will provide ease of access for tenants and their shipments, while triple freeport exemptions will put more money in tenant pockets as they save on inventory taxes. For logistics providers, distributors and their personnel, the park location could not be more central in the burgeoning Texas metro, located approximately 18 miles from the Dallas-Fort Worth International Airport and in close proximity to the Arlington Highlands lifestyle center, AT&T Stadium and Globe Life Park in Arlington.
TGS Cedar Port Industrial Park in Baytown
Big, hospitable and all about business could describe Texas in general, but the same could be said about TGS Cedar Port Industrial Park, the largest master-planned, rail- and barge-served business park in the country.
Located 35 minutes from downtown Houston, the 15,000-acre TGS Cedar Port Industrial Park will accommodate more than 3,000 railcars by the end of the year.
“Here in Houston, if an industrial prospect needs a large, port-accessible, rail-served site, there’s really no other place togo besides TGS Cedar Port,” says Joel Michael, a partner at NAI Partners and lead leasing agent for the property.
James Scott, an owner at Trans-Global Solutions Inc. (TGS), compares the industrial park to port authorities. “As for private alternatives with the rail, barge and proximity to a deep-water port, I don’t know of any that have the ability to offer really large tracts of land like we can,” says Scott.
James Scott, Trans-Global Solutions Inc.
Located 35 minutes from downtown Houston in Chambers County and seven minutes from Interstate 10, TGS CedarPort spans 15,000 acres, with more than 10,000 acres available for development. In a little over two years since it purchased the park, TGS has sold more than 500 acres, which contain over 5 million square feet in various stages of development. Tenants include Walmart, The Home Depot, IKEA, Borusan Mannesmann, JSW Steel, Ravago, PBP, DHL Express, TMK IPSCO, National Oilwell Varco and GE Water.
TGS got its start in the railroad business and it shows at TGS Cedar Port Industrial Park, which offers more than 60 miles of track and dual-rail access, both Union Pacific and BNSF. The company will expand its storage capabilities on the property to accommodate more than 3,000 railcars by the end of the year.
“That allows all of our rail-served customers to be flexible,” says Scott. “We operate the railroad, we switch all the rail inside their facility and when they expand they can store cars with us. About one-third of the cars we store are for the customers inside the park. We have a lot of customers that actually bring in product by rail and then barge it out.”
Clay Development & Construction, which purchased 80 acres from TGS in 2015, is working on a 1.5-million-square-foot distribution park, 1 million of which has been leased by IKEA. The Scandinavian furniture retailer has already moved into the first building.
One of our biggest objectives in rebranding the park was making it known that TGS is absolutely pro-development, as well as getting the rail and real estate aligned,” says Michael.
Joel Michael, NAI Partners
Clay’s ongoing 500,000-square-foot spec project, which should open in the fourth quarter, is the only vacancy in the park. In addition to the rail, port and road access — Grand Parkway connects from I-10 through the property — tenants can take advantage of the Chambers County Improvement District, which facilitates public infrastructure projects such as the building of roads, water lines and water detention areas.
Port Crossing Commerce Center in La Porte
In December, Port Crossing Commerce Center (PCCC), a 300-acre logistics and industrial park located in La Porte,
between Houston and Galveston Bay, welcomed its latest addition: a 415,272-square-foot cross-dock building. Liberty Property Trust, a $9 billion real estate investment trust with property holdings of 7.4 million square feet in metro Houston, wasted no development time after acquiring PCCC in late 2015.
“While other markets slowed during the recent energy downturn, interest, development activity and leasing on the far east side of Houston accelerated,” says Gary Mabray, principal at Colliers International and PCCC’s leasing agent. “In this case, low energy prices proved to be a catalyst for growth.”
Citing low feedstock costs, Mabray reports that the petrochemical industry has undertaken massive new infrastructure projects all along the Gulf Coast. According to C. A. Shields at the Bay Area Houston Economic Partnership, the biggest business driver now impacting the Houston Ship Channel and surrounding cities is the infusion of more than $50 billion in capital investments for new and expanding petrochemical and specialty chemical facilities, which will come on line later this year and in 2018.
Additionally, Mabray says that Houston’s port activity continued to grow as container traffic increased because “the opening of the expanded Panama Canal promised more water-borne deliveries and Houston’s significance as the new ‘third coast’ was reinforced.”
Colliers International reported that more than 2.4 million square feet of the market’s 5.2 million square feet of industrial space under construction at year’s end — 78 percent of which is pre-leased — is located in the “East-Southeast Far” submarket of Houston’s Ship Channel and the Port of Houston.
Situated, designed and primed for robust activity, PCCC is served by more than 130 trucking lines and Rail Logix’s railyard. It is also the closest industrial park to both the port’s Barbours Cut and Bayport container terminals.
“The master-planned, deed-restricted business park is a state-of-the-art, multi-modal distribution complex designed to handle cargo from terminal to park and beyond with speed and efficiency,” says Walter Menuet, senior vice president at Colliers International ’s Houston office.
PCCC will consist of nearly 4 million square feet of industrial space when fully built out; only approximately 40 percent of
the park property has been developed. Currently, six tenants occupy more than 1.1 million square feet — an occupancy level of 100 percent, Mabray adds — with lease negotiations pending on the new building.
Talks are also ongoing regarding several of PCCC’s greenfield sites. The park currently offers more than 100 acres of project-ready sites for development, all complete with offsite storm water detention, city utilities and Foreign Trade Zone status (which exempts qualifying companies from import duties on foreign goods).
“The financial strength of Liberty Property Trust, the outstanding design teams it put together and its hands-on knowledge of changing trends in warehousing and distribution ensure that the product it offers to the marketplace will always be the highest in terms of quality and functionality,” says Mabray.
Greens Port Industrial Park in Houston
According to IHS Maritime & Trade, one of the biggest supply-chain trends and challenges is the accommodation of mega-container ships. Data from the trade authority indicate that the amount of 14,000 to 18,000 TEU (twenty-foot equivalent unit) vessels delivered to market will swell to 25 this year, up from a total of four in 2013. Greens Port Industrial Park in Houston has stepped up with the recent completion of 2,100 feet of deep-water docks able to accommodate these Panamax-sized vessels.
“Greens Port is the only terminal that has connection to all Class 1 railroads and all major highways, as well as deep-water vessel access, barge access and pipeline access in Houston,” says Ernie Farrand, vice president of operations for Watco Cos.’ Houston division. “Our customers have multiple options to deliver and receive their products from all over the United States and the world.”
Owned by Watco since 2011, the 655-acre Greens Port Industrial Park offers 3.1 million square feet of warehouse space, 31 miles of railway, four deep-water docks and three barge docks just minutes away from Interstate 10. Originally opened in 1942 as the ARMCO Steel Mill, the industrial park is now home to GE, BP, Helmerich & Payne Inc., and 22 other tenants, which account for the park’s 99 percent occupancy rate. Only 5 percent of the facility remains undeveloped.
“For tenants to operate at maximum efficiency in an industrial park today, they need greater connectivity to all modes of transportation to quickly deliver their products to customers,” says Farrand. “Greens Port Industrial Park is the largest private, multi-tenant and multi-commodity industrial park with direct access to deep water ships and barges, all Class 1 railroads in Houston, interstate trucking and the major pipelines that connect the Gulf Coast and East Coast of the United States.”
Owner of one of the largest short-line railroad holding companies in the U.S., which operates more than 4,700 miles of track, Pittsburg, Kan.-based Watco knows about efficient connections, having provided transportation, terminal and port, supply chain and mechanical solutions for customers throughout North America and Australia. Greens Port is one of more than 65 terminals the company’s Terminal and Port Services division currently manages.
“Watco’s focus on customer satisfaction has grown the company into an all-encompassing industrial powerhouse serving the rail, mechanical, switching, storage, trucking, warehousing and terminal/trans-loading needs of customers throughout 37 states,” says Farrand.
— This article originally appeared in the February 2017 issue of Texas Real Estate Business magazine.