Port Upgrades Accelerate Houston Industrial Real Estate Growth

Houston’s industrial real estate market had a strong start in 2023, according to a report by JLL.

The market continued to grow as 6.6 million square feet of new supply was added in the first quarter, with 56 percent preleased. That resulted in 5.5 million square feet of net absorption in the first quarter. Meanwhile, construction activity reached almost 31 million square feet with eight large-scale projects over 1 million square feet currently underway. About 28 percent of the current under-construction inventory was preleased due to demand for new buildings.

About 7.7 million square feet started construction in the first quarter led by activity in the Northwest and Southeast submarkets, which account for nearly 50 percent of new industrial activity. Speculative builds accounted for about 75 percent of new deliveries, and they gained strong traction in lease-up before delivery, with almost all of the largest move-ins taking place in new construction spaces.

Northwest has typically been the strongest submarket because of its access to the San Antonio and Austin markets, said Mark Nicholas of JLL.

“But now with the port demand and what’s going on in the shipping industry, largely in logistics, demand has picked up there tremendously,” he said. “Many of the new companies that moved to Houston want that close proximity to the port.”

Port Houston, in collaboration with the U.S. Army Corps of Engineers, announced last summer a $1 billion expansion of the Houston Ship Channel to add a third terminal. Baytown reported a 25 percent increase in port activity last year, according to the Baytown West Chambers County Economic Development Foundation. The terminal is designed to meet the increasing demand of Port Houston and is expected to reach completion by 2025.

Leasing activity was also robust last quarter, with 8 million square feet of deals signed. Construction, retail and the logistics and distribution industries dominated the leasing volume. Notable projects include the 1.3 million-square-foot logistics campus in Baytown, dubbed Port 99 Logistics, that Provident Realty Advisors is developing. Construction could start this quarter and be completed in the fall.

Nicholas said he expects Houston to continue to capture demand from companies across industries as they take advantage of the region’s capacity and labor pool. A recent census analysis published by the Greater Houston Partnership shows the metro area added 125,000 people in 2022 alone, ranking it second to Dallas among the nation’s fastest-growing metros.

“I think this year will be another great year, just like Dallas. Manufacturing is certainly coming back. The auto service industry is coming back pretty strong. We can’t wait anymore for China,” Nicholas said. “The trend line for growth in our cities is trending with the industrial development market pretty well.”