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NAI Partners Commercial Real Estate Houston Submarket Spotlight Southwest

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The Southwest submarket contains 69.7 million sq. ft. of inventory, with Warehouse/Distribution representing 50 million sq. ft. of that total, Manufacturing 7 million sq. ft., and Flex space 12 million sq. ft. Of the more than 547 million sq. ft. of industrial buildings in the seven major submarkets throughout Greater Houston, the fourth largest concentration is in the Southwest submarket, tallying 1,650 properties representing 12.8% of the total stock. In addition, the Southwest submarket has the second-largest amount of Flex space, representing 26.0% of this versatile type of commercial real estate. By design, Flex space may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, including but not limited to industrial, warehouse, and distribution uses, and typically, at least half of the rentable area of the building must be used as office space. Flex buildings characteristically have ceiling heights under 18′, with light industrial development, and have also been called Tech and Showroom buildings in markets throughout the country. As of the end of the third quarter, the Southwest submarket’s vacancy rate was 6.4%, with 286,293 sq. ft. of negative absorption in 2017 and 519,400 sq. ft. of new industrial product delivered.

Houston’s Southwest industrial submarket has grown into a workable option for developers and large users who had been waiting for the Northwest and Southeast submarkets to become more affordable, but still want straightforward access to major transportation corridors and infrastructure. The submarket’s growing attractiveness is demonstrated by its vacancy, which has remained at or below 6.5% since Q1 2013.

Greater Houston Southwest Submarket Industrial Commercial Real Estate

While it may not be a significant warehouse or fulfillment center market today, expected population growth and median household incomes of the surrounding Fort Bend County, coupled with solid connectivity make it a distribution market to watch. The University of Houston’s Hobby School of Public Affairs reported that Fort Bend County’s population will increase by 368%, or more than 2.1 million people, by 2050 if current migration trends continue. The county southwest of Houston would experience the fourth-highest growth in the state in basic numbers, behind Harris, Collin and Denton counties, and the third-highest in percentage terms, behind Hays and Collin counties. Fort Bend County’s population now is about 700,000.

Furthermore, a testament to the strength of warehouse and distribution centers in the submarket is the development of Best Buy building a major 550,000-sq.-ft. delivery distribution center on the southwest side of Houston. It will be located at 636 Hwy. 90 in Missouri City, at the corner of Cravens Road and Hwy. 90 near Beltway 8.  The warehousing logistics facility will store well-known Best Buy products such as consumer electronics and major appliances with a scheduled opening date in time for the 2018 holiday season. Upon completion, the new warehouse is expected to create at least 40 full-time jobs to enable shipment to approximately 60 Best Buy stores in Texas and Louisiana as well as customers’ homes.

Houston Southwest Industrial Submarket chart

Ultimately, it’s easy to understand why companies such as Aldi, Frito-Lay, Rooms To Go and Best Buy have each selected locations in Houston’s Southwest industrial submarket due in part to the proximity to interstate highways, workforce availability, incentive opportunities and undeveloped available land. All of these key factors work towards the development of the U.S. 90A and Sam Houston Tollway interchange becoming a major regional industrial center.

Houston Southwest Industrial Submarket chart

Real Capital Analytics data reports year-to-date, September 2017, industrial sales volume in the Southwest industrial submarket at $243.8 million, resulting in a year-over-year change of 133%. The buyer composition is made up of 48% institutional, 22% private, 15% REIT/Listed, 11% cross-border, and 4% user/other. Another positive sign for the Southwest industrial market is the Colony NorthStar Industrial REIT acquisition of Bayou Bend Business Park located at 8520 S Sam Houston Pkwy., a two-building industrial park that totals 382,505 sq. ft. from Thackeray Partners.

Houston Southwest Industrial Submarket chart

Hurricane Harvey affected economic activity in Greater Houston at the end of August and through a good portion of September. The majority of Houston’s industrial properties withstood the storm with no major underlying damage. Indicators show that recovery is well underway with home sales rebounding in September, and refining and petrochemical facilities operating at normal pace. While signs that Houston’s economy was weakening heading into the fall, the medium-term outlook for Houston remains positive.


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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