Houston Industrial Developers Covet Infill Sites
The growth of large distribution facilities for e-commerce users and third-party logistics providers (3PLs) symbolizes the evolution of Houston’s industrial market.
Consequently, developers are leaping into action to secure well-located infill sites that are squarely in the pathways of natural population growth, the rise of new industries and infrastructural upgrades.
According to data from office and industrial brokerage firm Lee & Associates, there was roughly 18 million square feet of distribution space under construction throughout the Houston area at the end of 2019. This figure represents a 20 percent increase above the previous high of 15 million square feet in 2015, the approximate time at which the price of oil — the longtime foundation of Houston’s economy — began to tumble.
The sheer size and number of these projects has catapulted Houston into the No. 3 spot nationally for industrial product under construction behind Dallas-Fort Worth (DFW) and California’s Inland Empire, according to the latest data from CoStar Group.
CoStar notes that there is roughly 27 million square feet of industrial space across all sub-types of industrial product under construction throughout Houston. The market also took the bronze medal for new deliveries in 2019.
Older, smaller industrial properties that were traditionally leased to companies that serviced oil and gas supply chains saw some dips in demand and occupancy as a result of the energy slump. But the struggles of this segment of the market were offset by the growth of large-scale distribution projects throughout the Houston area. From build-to-suit deals for household names to speculative projects in proven submarkets, Houston’s pivot to a major distribution hub speaks volumes about the city’s economic diversity and resiliency.
Per CoStar, Houston’s market-wide industrial vacancy rate currently sits at 7.2 percent, while 12-month rent growth clocks in at 0.9 percent. Stabilizing oil and gas prices, aided by advancements in drilling technology and tensions with international suppliers, have undoubtedly contributed to the market’s overall healthy fundamentals via restored demand from domestic oil and gas servicers. Manufacturers that produce valves, pipes and machinery for energy firms have also gotten back into the market as energy prices demonstrated severe fluctuations in 2019.
But in terms of new construction, it’s the large distribution centers targeting e-commerce and 3PL users that are stealing the show. Developers are breaking ground on these projects across many different areas of the city — a testament to just how valuable well-located infill sites have become across multiple submarkets.
Whereas areas like the Southeast submarket near Port Houston and the Northeast submarket near George Bush Intercontinental Airport (IAH) were preferred regions for new development in past cycles, the value of infill dirt is now rising rapidly across all parts of Houston’s urban core.
In the last 18 months, a number of Texas-based and national developers have purchased land or commenced construction of warehouse and distribution projects that span hundreds of thousands of square feet and feature the high ceilings, deep truck courts and excess trailer storage that
e-commerce and 3PL users require.
Examples of these projects include Layne Crossing, a 529,000-square-foot project within Pinto Business Park in North Houston by Dallas-based Crow Holdings; Clay 99 Building 5, a 433,000-square-foot speculative development in Northwest Houston by Indianapolis-based REIT Duke Realty; Bayport South, a 643,000-square-foot development near Port Houston by California-based Panattoni Development; and 59 Logistics Center, a 509,000-square-foot speculative project near IAH by Dallas-based Hunt Southwest. All of these projects are scheduled to come on line at some point in 2020.
Growth is balanced throughout Houston, with areas like Pearland and Sugar Land to the south topping national ranks in population growth. To the east, expansionary activity at Port Houston continues to fuel job growth in surrounding submarkets, while Houston’s affluent suburbs to the north continue to add more housing to support job growth.
The following are some of the newer, large-scale warehouse and distribution projects in development around different parts of Houston that are meeting the heightened demand for last-mile projects. As this list demonstrates, sites that are located within or just off the Sam Houston Tollway (Beltway 8) or Grand Parkway (Texas Highway 99) are quickly being taken down by developers.
South Belt Central
Locally based firm Investment & Development Ventures (IDV) recently began construction on Phase I of the 3.5 million-square-foot South Belt Central Business Park.
IDV secured a site at the corner of Cottingham Road and Beltway 8 on the city’s south side that features 166 contiguous acres. The site offers proximity to downtown Houston and the Texas Medical Center and can accommodate build-to-suit projects of up to 2 million square feet in a single
“The market needs fully entitled, shovel-ready land in a deed-restricted business park,” says Tyndall Yaap, CEO and managing principal of IDV. “This is especially important for time-sensitive projects in today’s evolving construction and flood mitigation environment.”
The development team also cites the proximity to a qualified workforce, multiple points of access and new flyover ramps connecting various thoroughfares as key features of the infill site.
Phase I of the project, which is expected to be complete in the fourth quarter, will center on the delivery of a 305,016-square-foot cross-dock building with trailer parking and a 131,553-square-foot side-load building. Cushman & Wakefield has been tapped to handle leasing of the project.
Nexus Park NorthWest
In February, North Texas-based developer Jackson-Shaw acquired 45 acres in Northwest Houston for the construction of Nexus Park NorthWest.
The site is located within Grand Parkway and is equidistant to two major thoroughfares in Beltway 8 and U.S. Highway 290. In addition, the submarket houses delivery hubs for UPS and FedEx, which attests to the population density and job growth within northwest Houston.
Extensive frontage along FM 1960 — a six-lane, median-divided corridor with an established retail presence — is also a key feature of the site. The buildings themselves will feature ample trailer storage space and a higher number of automobile parking spaces to accommodate the high volume of workers that are typically needed to staff e-commerce
“There is an increased demand from retailers and wholesalers for industrial and logistics locations close to residential growth,” says Grant Pearson, vice president of development at Jackson-Shaw. “This infill location will serve the regional population growth in Northwest Houston and capture last-mile demand in this submarket.”
Pearson adds that the project will be marketed to different types of users that share the common thread of needing to locate their businesses within paths of residential growth.
“We’re targeting tenants that need to be close to rooftops,” he says. “Not just building supplies and materials, but other providers of basic consumer goods that require locations with strong population densities.”
Construction of the project, which will ultimately feature 476,640 square feet of Class A industrial space across four buildings, is slated to begin this month and to be substantially complete in December. Cushman & Wakefield is handling leasing of the project.
In the third quarter of 2019, Hines completed Phase I of Boulevard Oaks Business Park, a project that delivered 450,000 square feet of new space that is now 95 percent leased. Following this stabilization, the locally based real estate giant broke ground on Phase II, which will consist of 1.1 million square feet across six buildings.
Boulevard Oaks is located within the Southwest submarket. According to Hines director Laura Denkler, the location on this side of the city puts the project directly in the path of one of the city’s fastest-growing areas.
“The Southwest Houston industrial submarket is known as one of the most desirable submarkets in the Houston area,” says Denkler. “This is due to proximity to the major population center of Sugar Land and the growth areas along the Interstate 69 corridor and central location between Interstates 10 and 45.”
Denkler adds that growth in the Southwest submarket has been and will continue to be driven by “distribution requirements serving the food services industry, consumer goods, construction and supply companies and Houston medical centers.” Taken collectively, these demand drivers illustrate just how dramatically Houston’s economy has diversified from oil and gas.
Completion of Phase II of Boulevard Oaks is scheduled for this summer.
Ella West Crossing
Atlanta-based Seefried Industrial Properties, in partnership with San Antonio-based USAA Real Estate, broke ground on Ella West Crossing in North Houston in December 2019. The project will ultimately offer 221,393 square feet of Class A industrial space.
Ella West Crossing is located within Pinto Business Park, with direct access to both I-45 and Beltway 8 as well as proximity to IAH. Individual buildings will feature flexible configurations, including front-load and cross-dock capabilities. Lastly, the property will be able to accommodate a single or multiple users, with spaces being divisible to as small as 40,000 square feet.
In addition, Ella West Crossing will feature 11 park ingress/egress points to reduce inventory turnover times, as well as additional space for trailer storage, all of which are appealing to e-commerce users.
“The submarket has long been attractive to both light manufacturing users and supply chain operators,” says Jonathan Stites, senior vice president at Seefried. “With great access to Bush Airport, Port Houston, major business centers and desirable residential communities, this project is truly located in a strong logistical area.”
Completion of the project is scheduled for July. Avison Young is handling leasing.
—By Taylor Williams. This article first appeared in the March 2020 issue of Texas Real Estate Business magazine.