Future Cities

2022 North America Industrial Big Box Review & Outlook: Houston

March 11, 2022 5 Minute Read

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Houston’s pro-business environment, favorable real estate conditions and population growth continue to drive its thriving big-box industrial market. Recent demand for space has been led by e-commerce, logistics and building-supply companies. Additionally, 2021 was a record year for Port Houston with TEUs up 15%, reaching 3.5 million TEUs. We expect 2022 to be another great year for Houston Industrial.
Peter MainguyCBRE Senior Managing Director

Demographics

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More than 7 million people live within 50 miles of the market core, with a growth rate of 9.5% over the next five years—second to only Dallas-Fort Worth. Over 25 million people live within 250 miles, with expected growth of 7.9%. The 18-to-34 age group comprises 25% of the population.

Figure 1: Houston Population Analysis

Image of data table and chart

Source: CBRE Location Intelligence.

According to CBRE Labor Analytics, Houston’s warehouse labor force of 81,505 is expected to grow 10% by 2030, providing ample available labor for the burgeoning big-box market. The average wage for a non-supervisory employee is $15.09 per hour, 1.2% higher than the national average.

Figure 2: Houston Warehouse & Storage Labor Fundamentals

Featured statistics with text and icons

Source: CBRE Labor Analytics.
*Median wage (1 year experience); non-supervisory warehouse material handlers.

Location Incentives

Over the past five years, there have been 12 economic incentives deals totaling more than $185 million at an average of $116,744 per new job in the Houston metropolitan area, according to Wavteq.

According to CBRE’s Location Incentives Group, among the top incentive programs offered in Houston is the Texas Enterprise Fund (TEF), commonly referred to as a “deal-closing” grant. TEF awards discretionary cash grants to companies considering a new project for which a Texas site is competing against other viable out-of-state options. Award amounts are determined based on an analytical model that factors in the average wage of new employees, the hiring timeline and a company’s total capital investment.

Another incentive program available in Houston is the Skills Development Fund, which provides job training grants to community and technical colleges for customized training programs that support Texas businesses. This job training program is designed to upgrade the skill levels of new or existing employees, as well as increase wages of the Texas workforce.

Figure 3: Houston Top Incentive Programs

Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.

Logistics Driver

Houston offers an impressive array of distribution channels. Its central location makes it easy to reach both coasts within hours. The Port of Houston is the largest container port on the Gulf Coast and has been instrumental in the city’s development of international trade. The market is home to the nation’s largest petrochemical complex and the second largest in the world. Carrier services on all major trade lanes link Houston to all international markets. The shipping channel also intersects a very busy barge traffic lane, the Gulf Intracoastal Waterway.

The region's extensive highway system is well-integrated with the Houston Airport System, four deep-water seaports and the mainline railroads serving the city. Houston is at the crossroads of Interstate Highways 10, 45 and 69. I-69 is known as the "NAFTA superhighway," which links Canada, the U.S. industrial Midwest, Texas and Mexico.

The region's extensive highway system is well-integrated with the Houston Airport System, four deep-water seaports and the mainline railroads serving the city.

Image of highway

Capital Markets

Houston is poised for perhaps the most cap rate compression of all the major Texas markets this year. After the incredible rent growth of 2021, landlords have more opportunity to raise rents than any time in recent history. Cap rate compression should follow and should make property pricing more in-line with markets like DFW.
Jonathan BryanCBRE Executive Vice President

Figure 4: Cap Rate Comparison

Chart of year over year percentage changes

Source: CBRE National Partners.

Supply & Demand

With 194 million sq. ft., Houston is the ninth-largest big-box market in North America. Houston was the top big-box growth market (net absorption/existing inventory) in 2021 at 11.1% thanks to nearly 22 million sq. ft. of positive net absorption—triple 2020’s total. Net absorption was fueled by 13 million sq. ft. of leasing activity, also triple the previous year’s total. Most of the more than 18 million sq. ft. of new supply in 2021 was absorbed, lowering the vacancy rate to 6.6%.

General retailers & wholesalers and 3PLs were the most active occupier types, accounting for 73% of leasing volume. As occupiers are attracted to Houston’s growing seaport and population base, 2022 looks to be another strong year for the city's big-box market. Despite high demand, only 15.6 million sq. ft. is currently under construction, 37% of which is preleased. The low amount of first-generation space should further lower the direct vacancy rate this year.

Figure 5: Share of 2021 Leasing Activity by Occupier Type

Multicolored circle chart

Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.

Figure 6: Leasing Activity

Bar chart with text and numbers

Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.

Figure 7: 2021 Construction Completions vs. Overall Net Absorption

Image of bar chart

Source: CBRE Research.

Figure 8: Direct Vacancy Rate by Size Range

Image of bar chart

Source: CBRE Research.

Figure 9: Under Construction & Percentage Preleased

Image of data table

Source: CBRE Research.

Figure 10: Historical First Year Taking Rents (psf/yr)

Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.

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