Houston’s Industrial Buildings Are Getting Bigger

New industrial developments in the Houston area are growing in size, reflecting the shifting needs of e-commerce users and national retailers.

About 15.2M SF of industrial space is under construction in Houston right now, and the top eight projects are in excess of 500K SF, according to Colliers International’s Q3 2020 industrial market report. The majority of those are speculative developments.

“Where Houston really historically hasn't been a big-box market, it's starting to see a lot more demand for big-box space, and developers are responding to that with the type of product that they're building,” CenterPoint Properties Senior Vice President Rives Nolen said during a Bisnow webinar Dec. 1. “We're even seeing some build-to-suit activity with buildings that are a million square feet or more. And, we've got our first million square foot [speculative] project happening right now.”

The growing square footage of build-to-suit and speculative industrial buildings in Houston is being driven by large e-commerce players like Amazon, which has been a direct beneficiary of the coronavirus pandemic.

Houston’s industrial market reported 1.2M SF of positive net absorption in Q3, according to Colliers International. About half of that volume was attributed to Amazon moving into 443.5K SF in Houston’s northwest corridor, as well as 200.4K SF in the south corridor.

“This year, [Amazon’s] absorption will be 50% of the industrial absorption across the country. And you're also seeing that here in the Houston market. Almost half of the distribution absorption is directly related to Amazon,” Vigavi Realty Development Associate Christen Hatfield said. “Last-mile distribution is one of the highest in demand. And this kind of second product type that we've seen an uptick in demand is cold storage in Houston, due to the COVID lockdowns and more online shopping. There's been a direct correlation to an increase in cold storage.”

The demand for bigger industrial facilities means another thing: rising demand for more parking space and loading docks. Transwestern Regional Partner Denton Walker said that from a design standpoint, he has seen tenants shift from focusing only on building size to also having flexible vehicle and truck access on a large scale.

“The more parking, the more trailer parking, the more car parking, the more you design the building for a multitude of tenants, it's going to appeal to more potential users long-term,” Walker said.

Hatfield said that every new development in Vigavi’s pipeline is requiring the company to look at how it can incorporate a dedicated truck lane, separate from regular vehicle traffic. Clients are also seeking more truck queuing areas.

“The biggest things we're seeing is really higher clear heights, and more parking, and bigger buildings. It sort of all fits together as you look at the product. The bigger the buildings get, the more it creates a need for more trailer storage,” Nolen said. “It's hard to kind of balance that with a speculative product. How much parking do we [build on] spec, and how much do we leave as optional?”

It has only been in the last few years that Houston begun to face pressing issues with finding space to build large industrial buildings along major transportation corridors. As developers seek prime locations for more e-commerce retailers in the 500K SF to 1M SF range, the prospect of opting for expensive infill opportunities is becoming more palatable.

“Rooftops and labor are what these supply chain and logistics companies are looking for. So we're looking infill, and we're looking at demolishing some existing buildings that were built years ago, that are either physically obsolete or past their prime, and we're repositioning those sites for infill industrial,” Walker said.

Infill land is much more expensive, but for the biggest users who are zeroing in on last-mile delivery needs, location is everything.

“The question becomes at some point, how much further out are we going to go before we just say, all right, let's find a redevelopment opportunity that's in a better location for us,” Nolen said. “And the logistics advantages of being in that location will justify the cost of the land and getting through the process of solving the development issues.”