Q2 2012 Houston, Texas Industrial Submarket Trends

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Q2 2012 Houston, Texas Industrial Submarket Trends

Northwest suburban

  • Despite the recent attention given to the Southeast (described below), the Northwest, dominated by standard warehouse/distribution space, hosts the largest and currently most active of Houston’s industrial submarkets.
  • Reis divides the northwest into two submarkets, the I-10 North/U.S. 290 Corridor and, adjacent to the north, the Northwest submarket. Highway I-290 forms the boundary. The Highway 249 corridor bisects the Northwest submarket.
  • The two submarkets that comprise the northwest are reviewed in the sections immediately following.

Northwest /I-10 North/U.S. 290 Corridor

  • The warehouse/distribution inventory total per mid-year was 43.7 million square feet.
  • Met by roughly equivalent net absorption, 334,000 square feet of warehouse/distribution space completed construction in two projects in 2011.
  • A total of 267,300 square feet will deliver in 2012 in a single project (see below).
  • Net absorption through the first half 2012 was positive at 103,000 square feet.
  • Second quarter vacancy was 11.6%, down 20 basis points for the quarter, down 100 year-over-year.
  • Average second quarter asking and effective rents for warehouse/distribution space were $4.28 psf and $3.95 psf, up 0.7% and 0.8% for the quarter following large losses the quarter before—in the wake of losses of 0.2% and 0.3% in 2011.
  • The largest recent warehouse/distribution completion was the June 2011 finish of the 300,000-square-foot Westland II at West Road and N. Eldridge Parkway. A 60,000-square-foot manufacturing facility delivered to the same park in December.
  • Spec. 2012’s sole new project, which completed in July, will be the 267,273-square-foot Class A warehouse/distribution building at Northwest 8 Distribution Center.
  • Proterra Inc. was the developer. The building got underway with no preleasing.
  • A 148,000-square-foot project was under construction per report date at Stonegate Distribution Center at I-10 and Highway 90. The completion date was not specified.
  • Data center. Colocation firm CyrusOne is developing a 120,000-square- foot data center, its third on the property off Beltway 8, bringing the square footage of its three-building complex to about 300,000, Texas Real Estate Center (TREC) reported in August.
  • DCT Industrial Trust Inc. has purchased the 111,000-square-foot, 98%-occupied, Class A 7425 Pinemont at Pinemont Business Center. Pinchal Family LP was the seller.
  • Industrial Income Trust has acquired a four-building, 515,478-square- foot industrial portfolio in this submarket, TREC reported in July. Two buildings belong to the Northwest 8 Business Park and two belong to Windfern Distribution Center. Combined occupancy at sale date was “more than 93%.”
  • Outlook. Warehouse/distribution space demand should exceed same-year new supply by a small margin over the remainder of the year as the vacancy rate slips to 11.5%. Lease rate growth in the vicinity of 2.0% on average is anticipated for the year. The pattern, with the exception of higher rates of rent growth, should repeat itself in 2013.


  • The Northwest submarket hosts 34.5 million square feet of warehouse/distribution space.
  • With absorption exceeding same-term new supply, the second quarter vacancy was 6.5%, down 50 basis points from the quarter before, down 170 year-over-year.
  • Average second quarter asking and effective rents for warehouse/distribution space were $4.82 psf and $4.50, up 1.0% and 1.4% for the quarter and year-to-date following increases of 1.3% and 2.1% through 2011.
  • Seven warehouse/distribution projects with a combined total of 625,300 square feet will complete construction here in 2012, as follows:
  • The year’s largest project, completing in April, will be the 280,000- square-foot Crane Worldwide Logistics headquarters at Rankin Road and E. Hardy Street, Houston.
  • In March, 147,000 square feet completed construction in Prologis Northpark at Northpark Central Drive and North Freeway.
  • In July, 51,550 square feet delivered in two buildings at Northwest Park Industrial. Two others with a combined total of 89,100 square feet are proposed.
  • New development. Reis reports a July groundbreaking for warehouse/distribution buildings V and VI with a combined total of 199,000 square feet at Liberty Northwest Business Center at Hollister and Tomball Parkway. Liberty Property Trust is the developer.
  • More. Wayne Enterprises preleased 85,000 square feet in the larger (111,000-square-foot) building, reports the Houston Business Journal. A first quarter 2013 move-in is planned.
  • More. The Journal has cited an “ultimate price tag” for the pair at $15.5 million. “The two structures will fill the remaining space available in Liberty Northwest Business Center.”
  • More. Liberty added 212,000 square feet in two buildings at the park in January, as reported previously. “The market is very active right now,” Kraft said. “We’re trying to take advantage of it,” stated a Liberty executive.
  • Liberty Property still maintains 118 acres of developable land in north and northwest Houston.
  • Another new project in the pipeline is the $21 million Century Plaza Distribution Center at Century Plaza and Woodham drives. The developers are assembling three tracts with a total of 28 acres in an existing business park toward the development of 360,036 square feet. Reis expects the three buildings to complete in February 2013.
  • Commentary. “The developers say the time is right to build new projects, even without signed tenants, because the industrial vacancy rate is low in northwest Houston,” states the Journal. “There’s been no real new product come to the market in three to four years in northwest,” stated one of the developers.
  • The 131,000-square-foot first phase of the $30 million, three building Rampart Corporate Center broke ground “recently” without a tenant at W. Little York and Langfield, the Journal reported in July.
  • More. Restoration Hardware subsequently leased 70,500 square feet in the facility, TREC reported in August.
  • Current planning includes buildings III and IV with a combined total of 458,000 square feet at Airtex Industrial Center and North Freeway and W. Airtex Boulevard. A construction scheduled was not specified.
  • Update. Since Hines partnered with Pinto Realty Partners in April on what is “the largest contiguous undeveloped site near central Houston, the companies have focused on pursuing build-to-suit clients,” the Journal reported in July.
  • More. “The 971-acre site [Pinto Business Park], six miles from [the airport], currently has one tenant, Houston-based Sysco Corp., which developed a 585,000-square-foot distribution center at 10710 Greens Crossing Boulevard on 54 acres. There are 665 developable acres of land remaining at the park.”
  • Outlook. A relative balance of warehouse/distribution supply and demand in 2012, with a slight nod to demand, should result in a flat vacancy curve over the remainder of the year. Rent growth for 2012 should run at about 2.0% to 2.5%.


  • The Northeast submarket, dominated by warehouse/distribution space, includes George Bush Intercontinental Airport, a key factor.
  • Given proximity to the airport, the submarket has been attractive to logistics companies. Both development and absorption have been active.
  • Commentary—the path of growth. “Land around George Bush Intercontinental Airport is now more prized than ever due to its access to prime logistical routes and Dallas-based Exxon Mobil Corporation’s planned campus south of The Woodlands,” the Journal reported in July. “The path of growth has moved from the Energy Corridor to the Beltway to north Houston,” stated a regional executive with DCT Industrial Trust Inc.
  • First half 2012 net absorption in the 20.2-million-square-foot Northeast warehouse/distribution submarket was 191,000 square feet accompanied by 100,000 square feet of newly completed construction.
  • Second quarter warehouse/distribution vacancy was 7.7%, down 40 basis points from a quarter earlier, down 120 year-over-year.
  • Gains of 0.7% and 0.9% lifted the mean asking and effective rents to $6.09 psf and $5.68 psf during the second quarter following smaller gains the quarter before. Respective growth rates for 2011 all told were very high at 7.1% and 7.3%.
  • The year 2012 will see the completion all told of three warehouse-distribution buildings with a combined total of 145,100 square feet, all of which had delivered by mid-year, as follows:
  • Two 50,000-square-foot buildings (4 and 2) delivered in January and February, respectively, at Kennedy Greens Business Park at JFK Boulevard and Heathrow Forest Parkway (the 50,000-square-foot Building 3 delivered in the same park in December).
  • More. 15 other buildings with a combined total of more than 2.0 million square feet have been proposed for the park. Included are the 600,000- and 360,000-square-foot Buildings 18 and 19.
  • More. The 100,000-square-foot manufacturing space Building 1 completed in the same park in May.
  • The 45,100-square-foot first phase of Vantage Parkway Development warehouse/distribution project completed in June at Beltway 8 and Aldine Westfield Road.
  • The 33,600-square-foot Flex/R&D Building 4 completed construction in May following a January start at Greens Road Industrial Park at Greens Road and Aldine Westfield roads.
  • McCord Development Inc. is “set to launch” the $5 billion-plus, 3,635-acre
  • Generation Park corporate park near and southeast of the airport the Journal reported in late April. “30 million square feet of office, industrial, medical, retail, hospitality, and multifamily space” are planned.
  • Archway Properties LP has proposed the 111-acre Air 59 Commerce Center at Highway 59 and Will Clayton Parkway, about two miles east of the airport, that could host “1.5 million to 2.0 million square feet of distribution space or tiltwall office buildings,” the Journal reported in July.
  • More. “Archway plans to pursue leases for build-to-suit tenants.”
  • Outlook. Warehouse/distribution net absorption should exceed same-term new supply by about 50,000 square feet this year. Vacancy should remain stable under 8.0% in the period ahead. Rent growth at about 2.0% is projected for 2012. Higher rates of increase should follow.

Other North/The Woodlands

  • Stream Data Centers has started construction of a data center in The Woodlands (beyond current submarket boundaries), the Houston Business Journal reported at the end of June.
  • More. “A single tenant can control the facility, or it can be divided into three independent data center suites. The project, Stream’s fifth Texas data city, should be operational by April 2013,” the developer informed the source.


  • In response to growth in trade and the major expansion of port facilities (in particular the 2007 opening of Bayport Container Terminal), Houston’s status as a major international port has been greatly enhanced. The build-out of terminal facilities could run to 20 years.
  • Although there is strong competition among southern U.S. ports to capture new shipping, the widening of the Panama Canal, to be complete in 2014, also could enhance Houston’s port activities.
  • Houston’s role as a major national distribution center also has been enhanced. In a landmark move, Walmart’s opening a few years ago of a 4-million-square-foot distribution center at Cedar Crossing Industrial Park is a case in point. Other major retailers, including Home Depot and Whirlpool, also have developed major distribution facilities in the area.
  • Numerous major national developers including Majestic Realty, First Industrial, Koll, Duke Realty, ProLogis, Centerpoint Properties, and others have staked out sites here.
  • Reis’ mid-August report on individual construction projects cites approximately 5.1 million square feet of warehouse/distribution space in the planning-proposal pipeline in a few large business parks, including ML Realty Partners’ Port Crossing Commerce Center in La Porte (more below), Clay development’s Deerwood Glen Business Park in Deer Park, Transwestern’s Port 225 in Pasadena, and Johnson Development’s Republic Distribution Center in Pasadena.
  • The latest data on Reis’ 17.5 million square feet of single- and multi-tenant warehouse/distribution space show signs of a strong recovery.
  • Total first half 2012 net absorption was 332,000 square feet alongside 307,000 square feet of newly delivered supply. Total 2011 net absorption was 1.0 million square feet.
  • Vacancy ended the latest quarter at 13.7%, down 10 basis points since the first quarter, down 330 year-over-year.
  • Flat growth in the mean rents in 2011 was followed by respective gains of 0.9% and 1.4% year-to-date in 2012. Second quarter growth rates were 0.2% for each rent. Asking and effective averages ended the period at $4.66 psf and $4.31 psf.
  • Port Crossing Commerce Center in LaPorte “will soon be home to another distribution center,” TREC reported in August. National Property Holdings and ML Realty Partners are planning the $6 million, 261,000-square-foot A3 distribution center on 12.1 acres. A mid-August groundbreaking has been scheduled.
  • More. A tenant had not been secured for the building per the date of the report.
  • The 2012 warehouse/distribution construction completion total will consist of
  • 307,280 square feet in two projects, both of which had completed per report date:
  • The 267,280-square-foot Sens Road Distribution Center at 1445 Sens Road, La Porte, which broke ground in November 2011, completed in April. Carson Companies was the developer. The building was 75% preleased to Canal
  • Warehousing.
  • The 40,000-square-foot Total Safety-Web Murray project completed at 4210 Malone Drive, Pasadena, in February.
  • A June 2012 start and completion in December have been reported for the 261,630-square-foot Building A3 at Port Crossing Commerce Center at 1902 S. 16th Street, La Porte. ML Realty Partners and National Property Holdings are the park’s developers.
  • In an area of Baytown located just beyond current submarket boundaries, the 168,430-square-foot Building 2 at National Property Holdings’ Ameriport Industrial Park completed in February after a June 2011 start. The building is 100% leased, TREC reported earlier.
  • In Texas City, farther southeast and also beyond current submarket boundaries, a 165,000-square-foot distribution facility for Del Papa Distributing completed construction in April.
  • Flex/R&D. The 35,000-square-foot Deerwood Glen Business Park CDC Spec 27 project completed construction in June in Deer Park.
  • The 32,400-square-foot Building 3 at Bay Oaks Business Park, Houston, is underway for an October finish. Construction began in May.
  • Reis reports 116,000 square feet of Flex/R&D space planned for 11 buildings at the 12450 Highway 3 business park at that address in Webster.
  • Outlook. Reis expects a relative balance of new supply and net absorption for the warehouse/distribution sector for 2012 with each running above 550,000 square feet. Vacancy should slip to 13.6% by year-end and stay close to 13.5% for a period to follow as absorption and construction observe rough balance. Rents should grow in the range of 1.5% to 2.0%, roundly speaking, this year with growth to accelerate in 2013.


  • Flex-R&D. With 6.3 million square feet of existing inventory, the I-10 S./Sugar Land submarket in the suburban southwest is among metro Houston’s largest Flex/R&D markets.
  • With 30,000 square feet of new supply delivered, Flex/R&D net absorption for first half of 2012 was 29,000 square feet following 277,000 of net absorption in 2011. The second quarter 2012 total was negative 26,000 square feet.
  • The 30,000 square feet of new supply completed year-to-date belong to Himalaya Herbal Health Care property in Sugar Land, which completed during the first quarter.
  • Current construction includes the 208,000-square-foot Beltway Crossing II warehouse/distribution project in Missouri City. Reis expects completion in September.
  • A 42,000-square-foot manufacturing facility for OMB Valves broke ground in March in Stafford. A March 2013 completion is planned.
  • Niagara Bottling LLC is planning to break ground this summer for a $51 million to $57 million, 356,000-square-foot bottle manufacturing, water processing, warehouse and distribution facility in Missouri City, GlobeSt.com reported in August. A first quarter 2013 opening is expected.
  • Second quarter Flex/R&D vacancy and average asking rents were 11.8%, up 50 basis points for the quarter, down 200 year-over-year, and $7.08 psf, up 0.1% for the quarter.