Bigger, Taller, Colder: Houston’s Industrial Market Is Evolving

Houston’s industrial market is starting to look a lot more like other major U.S. industrial hubs, as e-commerce, grocery and third-party logistics demand is driving the need for bigger, taller — and in some cases, colder — buildings.

Over the past two years, Houston has seen its new industrial buildings getting larger, reflecting the needs of e-commerce users and national retailers.

Lovett Industrial President and co-owner Charlie Meyer said his firm is developing one of three 1M SF build-to-suit industrial buildings under construction in Houston right now. The city has never had so many industrial projects underway of that size before. 

“I think that's kind of unprecedented in a lot of ways, and I think that's indicative that the market is in need of larger-format space,” Meyer said during a Bisnow digital event on April 29.

Meyer noted that Houston is the only market of its comparable size where 1M SF speculative projects don’t happen more regularly. However, based on the intensifying demand, that could soon change. 

“I think there's a case to be made that that could change. I don't think that I ever would have thought I would hear myself say that a year-plus ago. But it does seem to me that there's some momentum in that direction right now, which is pretty interesting,” Meyer said.

Powers Brown Architecture principal Nazir Khalfe noted that the traditional Houston standard was a 24-foot clear height for industrial buildings. Now, as buildings swell, clear heights are more likely to require at least 36 feet.

The appetite for bigger, taller industrial buildings appears to be unaffected by the soaring price of construction materials and extended delivery times, which has been causing massive headaches and in some cases, delays for construction and development firms around the country. 

“I certainly have not seen any slowdown or lack of appetite. It's been actually surprising, I think to everyone in this business, because this has always been a very low margin business where cost is everything,” Meyer added.

The other major trend emerging in Houston is speculative cold storage. RealtyLink is building a 272K SF cold storage facility within the TGS Cedar Port Industrial Park in Baytown, one of several developers looking to meet the cold storage shortage in Houston.

RealtyLink principal Thomas Eldridge said that around the Port of Los Angeles, there are 40 third-party logistics cold storage facilities to cater to demand. Dallas has 25 similar facilities. Houston only has nine to serve the entire city.

“If you took a look at the landscape of the existing cold storage facilities in Houston today, they're all busting at the seams. You see trucks that are lined up for half a mile to get in, so there's serious congestion,” Eldridge said.

Other speculative cold storage facilities in Houston include a 304K SF cold storage facility in North Houston being developed by Tippmann Innovation, Scout Capital Partners’ 248.2K SF facility near La Porte, Boomerang Interests’ 286K SF cold storage facility in northeast Houston, and Blackline Cold Storage LLC’s newly announced 300K SF cold storage facility at TGS Cedar Port Industrial Park. 

Like regular build-to-suit or speculative industrial products being developed now, most cold storage developers want more height to maximize the value of the building, Eldridge said. And as transportation services continue to go short-handed, it’s even more imperative for cold storage facilities to be in easily accessible locations. 

“If your location is not convenient, or there's bottlenecks, they won't even come pick your product up, you can't even get them to your site. So I think that's only going to continue,” Eldridge said. “I think that in the future, we're going to see a lot more value being adjacent to rail.”

Meyer said that he’s seeing more funds that are oriented directly toward speculative cold storage, and there are some investors that are doing it programmatically with certain developers around the country.

For Houston, it’s a sign that the industrial market is pivoting to catch up with consumer demand.

“I think it's something that you're going to see a lot more of in the near term,” Meyer said.