Houston Named Nation’s Top Emerging Industrial Market

Houston has been named the nation's top emerging industrial market in a new report, which cites its decreasing industrial vacancy rate despite 53M SF of new deliveries as one reason why.

Houston’s industrial market tallied nine deals of more than 1M SF since the start of 2020 on the back of strong e-commerce and retailer/wholesalers’ activity, according to the report released June 15 by Cushman & Wakefield. 

Big deals were just one factor contributing to its top emerging market title. The city saw 53M SF of new deliveries added to its inventory since the turn of the decade and strong demand that brought vacancy down from the five-year historical average of 6.9% to about 6%, the report says.

Houston’s market ramped up significantly since the onset of the pandemic. The city saw over 131.3M SF in new leasing activity from 2020 to 2022, according to the report. Tenant types were broad, with leases signed by the likes of Lowe's, Home Depot, Target, Wayfair and Tesla. 

Despite the recognition, Houston’s industrial growth cycle really began a decade ago when companies began evaluating how they would direct their shipping and diversify their distribution networks, said Sherra Gilbert, associate director of research for Cushman & Wakefield. 

“What they’re seeing is, ‘We typically have one large distribution center, and we ship everything out of there. How can we do this more cost-effectively? Oh, I know, we’ll build five of them and they’ll be closer to where we want to deliver,’” Gilbert said.

That led to industrial development not just in Houston but nationwide. Meanwhile, Houston also experienced significant population growth, she said. 

“The industrial and the big-box, they’re going to follow rooftops,” she said. 

In the five years preceding 2013, Houston industrial inventory grew at about 1.9% per year, Gilbert said. Over the five years following 2013, that growth increased to about 2.5% annually. Since the pandemic, it bumped up to about 4.5%, she said.

“We just had a ton of things going for us all at the same time,” Gilbert said. 

Port Houston has been in a huge expansion mode as well, she said. 

Port Houston is up 1% in traffic year-over-year, which says a lot considering the Port of Los Angeles, the No. 1 container port in the country, is down 25%, Port Houston Chief Commercial Officer John Moseley said at a Bisnow event this month. 

Other significant emerging industrial markets include Indianapolis for its third-party logistics leasing activity, Kansas City for e-commerce and Phoenix for manufacturing, the report indicates. 

But Houston hasn’t yet broken into the primary or gateway industrial markets, and Gilbert said it probably never will. The primary markets Cushman & Wakefield recognizes are Atlanta, Chicago, the Inland Empire in California, Dallas-Fort Worth, central and northern New Jersey, the Pennsylvania district corridor and Greater Los Angeles.

“I do not think [Houston] will become one of the top tiers just because of our location,” she said. “Forty miles south of us, we have the ocean. Forty miles to the east of us, we have the ocean. You have all of these other cities considered gateway cities because of their central location to so much. We are ocean-locked by how far south we are.” 

The port serves the local economy more than it puts Houston on a national map when it comes to the industrial market, she said.

Houston’s 6% industrial vacancy rate is still higher than the national average of 3.6%, which means it isn't as tight as others, the report says. This has likely also contributed to the strong activity, according to the report.