Despite fresh injections of geopolitical chaos and renewed fears of tariff-induced inflation, the new year has brought an elevated sense of positivity among Texas industrial investors and the brokers who represent them.
Although the sector is hardly flying as high as it was three years ago, the strong underlying fundamentals of Texas markets represent a story that has yet to see an unhappy ending. In addition, there is an understanding that with all setbacks and disruptions comes new opportunities. Between that highly specific Texas real estate dynamic and that generic fortune cookie wisdom is the framework for industrial growth on both the supply and demand sides.
“We are huge believers in the Texas growth story and have conviction that the existing tailwinds will continue to propel our markets here to the forefront of the industrial investment landscape,” says Will Cronin, vice president of acquisitions at Dallas-based investment firm CanTex Capital. “The capital flows continuing to come here bear that out.”
Cronin’s perspective on industrial is both nuanced and appropriate. He says that since its inception, CanTex has primarily pursued off-market deals that were available not because of outstanding market fundamentals, but due to external factors like estate planning, changing tenant needs and debt maturities. Those deals tend to feature older, smaller product with value-add upside. That particular deal profile has strong appeal in the Dallas market, which is still burning off excess supply of massive e-commerce facilities that were delivered leading up to and during the pandemic.
“Shallow-bay, multi-tenant infill deals with value-add angles have always been our bread and butter, but in recent years, we’ve pursued to a greater extent low-coverage opportunities,” he says. “That might be shallow-bay
traditional warehouses with excess land or more recently IOS (industrial outdoor storage), which has a lot of capital flowing into it. We like the value-add proposition with regard to excess land and being able to capitalize and generate revenue off that land, and we’ve allocated more toward that space, which includes IOS, in recent years.”
Not all opportunities are created equally, of course, and the bandwidth for immediate and maximum deployment of capital will undoubtedly vary tremendously between markets and deal profiles. An owner of a shallow-bay, multi-tenant property with a low remaining WALT (weighted average lease term) that brings the deal to market is probably not going to morph into a hundred-million-dollar portfolio buyer on the flip side. An investment firm that finds a creative, cost-effective way to get a manufacturer into a distribution building with high electrical capacity may not necessarily make that its de facto business plan moving forward. And a developer with a high-octane bridge loan nearing maturity that finds an refinancing outlet through a debt fund isn’t automatically going to hold the property for another 10 years.
For investors that opt to be aggressive and opportunistic, there will undoubtedly be instances in which those unconventional scenarios hit too many snags on the road to reality and must be abandoned. Not every deal will be a home run. But the point is, in the industrial markets of Texas, those opportunities are there.
A joint venture between funds backed by Houston-based developer Griffin Partners and Chicago-based investment firm Peakline Partners is developing Griffin 288/West Airport, a 224,700-square-foot industrial project in South Houston. According to the developers, both the location and the size of the project reflect evolving tenant demands in the market.
Capital is not frozen. Distress is not widespread. Tenant requirements are real, and debt and equity providers — at least a good handful of them — are not living in fear of making a bad deal that costs them their jobs. If perception is reality, then 2025 can still be a very strong year for industrial owners, brokers and capital providers, even with all the background noise emanating from Washington, D.C.
“Industrial opportunities exist everywhere given the continued population growth and overall economic renaissance happening in Texas,” says Conrad Madsen, SIOR, co-founder and partner at Dallas-based brokerage firm Paladin Partners. “There is a lot of positivity in the marketplace, and we should see an increased amount of transactions over the next year. Capital needs to be deployed, and Texas industrial has proven to be a tremendously safe and profitable investment.”
Madsen is quick to qualify his statement, however.
“In Dallas, there is simply no developing today in certain overbuilt areas of the outfield,” he says. “However, if you have a great infield opportunity for a new development or value-add [play], you can really deliver some significant yields for your investors due to demand, low vacancy rates and soaring lease rates. Shallow-bay lease rates for new construction are now eclipsing $15 [per square foot] on a triple-net basis in select areas.”
According to the annual Emerging Trends in Real Estate report by Urban Land Institute (ULI) and accounting firm PwC, Dallas-Fort Worth (DFW) is the top U.S. market for overall real estate prospects. As Madsen’s statement reveals, however, even in a burgeoning market like DFW, developers and owners can’t just build or buy whatever, whenever, wherever and expect a healthy profit. Successful opportunism in industrial real estate requires in-depth submarket analysis, a boots-on-the-ground understanding of user trends and requirements and carefully cultivated relationships within the capital markets.
American-Made
None of that is news though. What is news, at least in the minds of several sources interviewed for this story, is the magnitude of opportunity in the manufacturing space.
“Although there are a lot of questions on the impact of tariffs, we’ve already seen a good uptick in manufacturing-related uses looking in the market this year,” says Charlie Strauss, managing director of capital markets at JLL’s Houston office.
Strauss says that he regularly meets with JLL’s industrial leasing and research teams in Houston to review active tenant requirements in the market, with the “active” label applying to groups that are touring facilities and putting out requests for proposals (RFPs). Those conversations illustrate the depth of overall tenant demand in Houston, with a growing demand for space from manufacturing users.
“The total amount of tenant requirements in the Houston market [on a square foot basis] is as large as we have ever seen,” explains Strauss. “Breaking that down by industry, manufacturing accounts for nearly a third of those requirements. In addition, our research team tracks about 90 million square feet of existing manufacturing space in Houston, and collectively, that product is more than 98 percent occupied.”
Apple recently made a splash in Houston when it announced plans to open a 250,000-square-foot manufacturing facility in 2026. The facility will produce servers that support the company’s artificial intelligence (AI) projects and programs and is part of the tech giant’s pledge to invest $500 billion in U.S. innovation and technological infrastructure and create some 20,000 new jobs in the process.
But most manufacturers do not have trillion-dollar market capitalizations that allow them to just drop a plant onto the ground at will. Most have to go through regular channels, which can mean long lead times and high rents.
To address the supply-demand imbalance in Houston’s manufacturing real estate sector, Strauss says that those users are re-thinking their site selection requirements and finding creative ways to get space by occupying newer vintage distribution buildings.
“Manufacturing groups are realizing the benefit of being under one roof and catering existing distribution buildings to their own needs,” he says. “They are able to occupy these buildings much quicker and bring their own infrastructure — such as cranes — to meet their needs. Investors are viewing the manufacturing space as an infrastructure play, and we’re seeing capital start to form to support what feels like a new subcategory of industrial investment.”
It’s hardly coincidental that this push in manufacturing is coinciding with massive expansion at Port Houston, where waterway traffic, infrastructure growth and surrounding development of industrial real estate are all hitting new highs. But the lack of available, purpose-built manufacturing facilities is real, and the aforementioned solution of leasing a conventional distribution building is not viable across the board.
“There’s virtually zero product in the market, and it’s very expensive to construct manufacturing facilities, which ultimately were not designed and made to have 60- to 80-foot columns, 20- to 30-foot clear heights and 1,400 amps of power,” says Jim Autenreith, Houston market leader at national brokerage firm KBC Advisors. “Last year, we had a 70,000-square-foot,
crane-served requirement, and it took over a year to find the right building.”
Autenreith adds that KBC is also working to better understand demand for manufacturing space relative to distribution, noting that most market reports combine these subcategories when reporting supply and demand. That process is complicated by the Trump administration’s inconsistent messaging and policy on tariffs. However, it appears that as of April 2, the White House had settled on 10 percent baseline duties on imports from all countries, with additional tariffs of varying percentages for different countries.
Cronin says that a manufacturer’s decision to forego leasing (or buying) a distribution building that is available immediately and instead wait for a more conventional, second-generation manufacturing facility to come to market often comes down to one variable: power.
“There’s a scarcity of power, and it can be cost-prohibitive to develop new buildings that can match the power that some of the older vintage buildings have coming to them — buildings that are from the ’60s or ’70s or early ’80s when the United States was the manufacturing king,” he explains. “What might appear to be a less-than-optimal building in terms of functionality may have irreplaceable power [infrastructure and capacity]. We’ve seen sustainable rent growth in those existing buildings, plus a deep tenant pool to backfill them.”
Usual Suspects
While U.S. manufacturing may currently be making headlines nationally due to the policy whims of a mercurial president, demand for distribution and logistics services are not going anywhere. According to Statista, global e-commerce sales are forecast to exceed $4.3 trillion in 2025 ($1.8 trillion in the United States), and to exceed $6 billion by 2030. The space undoubtedly still holds major opportunity.
Last fall, JLL arranged the sale of this 996,482-square-foot distribution center near Port Houston that is fully leased to Swedish furniture retailer IKEA. The two-building development was completed in 2017, a time in which major retailers were aggressively ramping up their e-commerce operations through new distribution facilities like this. Deals like that still represent a source of growth in the industrial submarket around the port, but manufacturing is making a stronger push, as is demand from energy users with green initiatives.
“We’ve recently seen an uptick in demand for 3PL (third-party logistics) spaces as people try to get their products into the country to distribute more efficiently,” says Strauss. “There’s been a lot of capital chasing the industrial space, both newly formed and re-entry on the equity side. Those groups have said that they want to match and/or exceed last year’s allocations.”
The opportunity in this subcategory of industrial real estate may be a function of the depressed deal volume that has prevailed over the past couple years. In other words, the bar was reset very low during the period of elevated interest rates, so a rebound in transaction activity feels like a bigger win now than it may have in the past. Again, it comes back to the notion of perception driving reality.
In addition, a trend that has prevailed in recent years — a downsizing of both tenant requirements and new developments — appears to still be very much intact. When Amazon formally pulled back on development of its mega-fulfillment centers a couple years ago, speculative construction of that product type slowed with it. Recognizing that markets still needed new quality supply, investors began looking more closely at value-add plays for older industrial buildings and to a lesser extent, office conversions.
According to Cronin, a shift back to pre-pandemic trends may not be that far off in DFW.
“There is still an abundance of big box distribution centers in the metroplex, but development has slowed dramatically on that product, which should allow the market to catch up,” he says. “There should be opportunity this year and beyond to pursue some of those larger buildings at an attractive basis.”
In Houston, Autenreith says that investors began wising up to shallow-bay, multi-tenant deals — especially those with low WALTs — a couple years ago. In his view, the market has enough inventory of that product such that it should still be attractive to new and returning players in 2025.
“If you look at shallow-bay industrial properties over the past three to five years, they’ve become more institutionalized, and a lot of that product has changed hands,” he notes. “We’ve seen a trickle-down effect in which there’s new equity players buying 20,000- to 80,000-square-foot shallow-bay buildings, compared to more institutional groups buying shallow-bay assets between 80,000 to 300,000 square feet. Shallow-bay product usually has one- to three-year leases, which get investors pretty excited.”
Shallow-bay, multi-tenant deals with value-add angles, however, are getting harder to find in Houston, Autenreith adds. Those deals anchored the industrial investment market during the lull of 2023-2024, and with interest rates now showing more signs of stability, owners of that product can more confidently forecast their exit cap rates. In other words, the uncertainty factor that might otherwise prompt a premature sale is less pronounced.
Other sources say that value-add deals that have a good narrative behind them are still very appealing to investors.
“You simply cannot throw up or rehab an industrial building anywhere — you need to understand the story, the conditions and what the market is lacking to have success in that area of town,” says Madsen.
“Value-add operators just need a good story and often need to pair with an equity partner to create a business plan,” adds Strauss. “Those value-add opportunities are out there, predominantly those that are mark-to-market plays.”
‘New’ Kids in Town
Perhaps it’s inaccurate to refer to IOS and data centers as “new,” as these property types have existed for decades in some form or other. But they are currently seeing elevated interest as subcategories of industrial product.
The appeal of IOS properties usually stems from their low-coverage nature, typically ranging in size from five to 15 acres and featuring buildings that account for a small proportion of the site. As outdoor storage and/or trailer parking space have risen on industrial users’ wish lists in recent years, IOS deals have emerged as an alternative means of meeting those needs.
A June 2024 report from California-based brokerage firm Matthews Real Estate Investment Services, which is active in Texas, found that the Dallas IOS market “has been witnessing robust growth in response to the city’s booming logistics and manufacturing sectors.” The report further noted that “outdoor storage facilities in Dallas are playing a crucial role in accommodating clients’ needs for their operations. Across the board, average rental rates are hovering around $5,500 per acre per month.”
Texas has been a popular landing spot for data centers, the kings of electricity guzzling, due to the state’s deregulated power grid and large swaths of available land in remote locations. With the AI boom getting stronger by the day, more of these facilities are needed to house servers that power the technology (or something like that).
Most recently in this vein, PowerHouse Data Centers, a division of Virginia-based American Real Estate Partners, unveiled plans for a 768-acre campus in the central metroplex city of Grand Prairie. Developed in partnership with the data center development arm of Dallas-based investment firm Provident Realty Advisors, the hyperscale campus will be constructed in three phases and will ultimately consist of 24 buildings with a power capacity of 1.8 gigawatts at full build-out. The announcement followed and expanded upon PowerHouse Data Centers’ 2024 plan to develop a 50-acre campus in nearby Irving.
— This article originally appeared in the April 2025 issue of Texas Real Estate Business magazine.