Slight Decline In Traffic Indicates Port Houston Is Sustaining Its Growth

Port Houston’s traffic declined 3.8% year-over-year in 2023, new reports show, but CRE researchers say that in this case, the bad news is good news.

That is because 2022 brought a record amount of port traffic nationally, lifting all boats at ports from coast to coast. But Houston sustained a much smaller decrease in 2023 than other large ports, which saw double-digit drops in traffic last year, Savills Research Manager Deandre Prescott said. 

“There was an increase in e-commerce and an increase in general [traffic] in 2022,” Prescott said. “Looking back at 2022, the economy was much stronger compared to 2023.” 

The three top-ranked ports by 20-foot equivalent unit volume are Los Angeles, Long Beach and New York/New Jersey. Those ports saw 12.9%, 12.2% and 17.7% decreases, respectively, in annual traffic last year, the Savills report released this month shows. 

Houston kept its No. 5 ranking by TEU volume, a spot that it grew into when its traffic surged in 2022, partly due to West Coast congestion and bottlenecks that shifted supply chains. Companies began evaluating transportation, labor and real estate costs, realizing it made sense to reroute many shipments to Houston in addition to other ports on the West and East coasts, Bisnow previously reported.

Some of that traffic appears to have stuck, Prescott said.

“Houston rental rates are fairly attractive compared to some of the rental rates on the West Coast,” Prescott said. “So you are still seeing that migration of companies moving some of their operations to Texas, whether it’s Houston or Dallas.” 

Companies began looking at diversified routes after the start of the pandemic, contributing to Port Houston’s traffic growing about 27% since 2020, said Carl Mueller, JLL senior vice president of industrial brokerage services in Houston. But its growth trajectory began decades earlier.

“The first company to do it was Walmart in the early 2000s,” Mueller said. “They built about 4M SF in Baytown. They were the first company to think, ‘OK, we need to have alternate ways of getting goods into the country besides California.’”

Similar thinking slowly spread until the onset of the pandemic, when traffic really took off, he said.

The trend has brought significant industrial real estate demand to Houston. Even today, 20% or more of Houston’s industrial demand comes from new-to-market tenants, JLL Texas Research Director Rachel Alexander said.

The size of industrial leases dropped between 2022 and 2023. There were six Houston industrial deals of 1M SF or more in 2022, according to JLL data. In 2023, the biggest industrial deal was 855K SF. 

That deal is still emblematic of the trends Houston is benefiting from, Alexander said. The company involved moved operations from California and likely reworked its logistics network to come through Port Houston.

“We have a broader labor pool. The industrial rents are far less expensive,” Alexander said. “There's an availability of buildings and land. It's a very business-friendly environment and a great place to locate for an industrial business.” 

Houston offers the most affordable industrial market among the five busiest container ports, with an average asking rent of $6.95 per SF in Class-A, 100K-plus SF buildings, the Savills report says. Even though it remains affordable, Houston’s annual industrial rent growth was 4.2%, according to the report.

Recent data indicates this growth could continue well into 2024. Port Houston achieved its busiest December on record for loaded exports and an 11% increase in total container volumes for the month compared to December 2022, according to JLL data. In January, container volume increased 4% compared to January 2023, making it the liveliest January on record by that measure. 

Although Houston industrial demand is dropping off faster than its supply pipeline, analysts are confident that the port’s growth will support absorption.

The port will also benefit from Project 11, which will widen the channel by 170 feet along its Galveston Bay reach, from 530 feet to 700 feet. Ships previously had to angle around each other in the 52-mile ship channel, Mueller said. 

“It was skinny enough to where, when the ships were passing each other, they called it the Texas chicken,” he said.

The first segment of the project was completed in February 2023, and it is scheduled for overall completion in 2026.