Houston Industrial Activity Increases, Intensifies

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There is no denying the Houston commercial real estate market is one of the strongest in the nation, and all indications are it will remain on this upward trajectory — especially the industrial sector. The Urban Land Institute (ULI) recently ranked Houston as the second best market to invest in industrial real estate in the country in its Emerging Trends in Real Estate 2014 report, and the organization predicts we will continue to build on this momentum.

While energy-related businesses and healthcare have certainly fueled the overall real estate growth in recent years, we are now seeing more consumer goods and e-commerce tenants take occupancy in industrial properties. This activity will ramp up even more as we move closer to the Panama Canal expansion opening in 2015, as well as the enlargement of the Port of Houston.

Larger Trends

In the first quarter of 2014, we saw 2.4 million square feet of industrial space delivered, and more than 8 million square feet of industrial construction underway. Vacancy remains low at 5.4 percent, and net absorption is at 1.6 million square feet for the first quarter of 2014.

A steady increase in job creation and homebuilding are also contributing factors. Houston’s job growth (81,300 added) led all metro areas in the state in 2013, according to the U.S. Bureau of Labor Statistics, and employment gains are expected to continue to increase in manufacturing and professional services. Homebuilding also shows no signs of slowing down, as the city took second place in ULI’s “U.S. Markets to Watch” homebuilding prospects, driving the need for additional consumer goods warehousing space. According to the ULI, “Houston is an overwhelming ‘buy’ and placed in the top three out of 15 markets for all property types.”

Foreign investors are playing an increasing role nationwide, according to the annual Association of Foreign Investors in Real Estate (AFIRE) survey, and the industrial sector is leading the pack in the United States. The good news for Houston is that two-thirds of the survey respondents said they are venturing beyond the marquis markets of New York, Los Angeles and Chicago to locales such as Houston and Dallas.

A strong local economy, business-friendly incentives, a cost of living that is below the national average and the expansion of the Houston Ship Channel are all driving Houston’s growth. In turn, Houston is among the key markets to invest in as we solidify our stake as a gateway city and continue to attract investors seeking long term, optimal returns.

Close Examination

Submarkets in Houston that are seeing the most activity include the North, Northwest and Southeast/Port of Houston. Taking advantage of Houston’s thriving industrial surge, several notable acquisitions have transpired since the beginning of 2014.

These include Cornerstone Real Estate Advisers’ purchase of Alamo Crossing Commerce Center, a four-building, 1 million-square foot complex in northwest Houston; Industrial Property Trust’s securing of Century Distribution Center, a 149,500-square foot, Class A distribution facility in the North submarket; and Stockbridge Real Estate Funds’ buying of Interwood Business Center I and II, two Class A industrial warehouses totaling 200,086 square feet in Houston’s North submarket.

In keeping with our firm’s goal of securing premium properties in prime locations across the Southwestern United States, Richland is also expanding our footprint into Houston’s Southeast submarket with our recent acquisition of Fairmont PH Business Park, a fully-leased, multi-tenant industrial property consisting of two buildings totaling 66,654 square feet on nearly five acres.

As we continue to see new properties come online, additional industrial projects announced, solid leasing activity, more corporations expanding and moving to Houston, the city should not only maintain its momentum, but exceed growth projections in all five property types.

By Edna Meyer-Nelson, Founder, President and CEO, The Richland Companies. This article originally appeared in the May 2014 issue of Texas Real Estate Business magazine.

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