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2020 North America Industrial Big Box Review & Outlook

Houston
March 22, 2021

“Houston’s pro-business environment, favorable real estate conditions and nation-leading growth continue to drive its thriving industrial market. Houston has an undeniable track record of resiliency, with consistent population and job growth despite challenging economic downturns, natural disasters and an ongoing pandemic. Recent demand for space has been led by e-commerce, logistics and building-supply companies.”
Peter Mainguy – Senior Managing Director

Demographics

More than 7 million people live within 50 miles of the market core, with 9.7% expected growth over the next five years. Nearly 26 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

Source: CBRE Location Intelligence.

According to CBRE Labor Analytics, Houston’s warehouse labor force of 92,437 is expected to grow by 10% in the next decade, providing ample available labor for the burgeoning big-box market. The average wage for a non-supervisory employee is $13.59 per hour, 3.4% lower than the national average.

Figure 2: Houston Warehouse & Storage Labor Fundamentals

Source: CBRE Labor Analytics.
*Median Wage (1 year experience); Non-Supervisory Warehouse Workers (forklift, warehouse workers).

Location Incentives

Over the past five years, there have been 12 economic incentives deals totaling more than $88 million at an average of $33,516 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 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.

Capital Markets


"Houston’s logistics market is one of the most desirable investment targets in the South Central region of the U.S. for both domestic institutional capital and foreign investors. Annual sales volume totaled $1.2 billion in 2018, $900 million in 2019 and $1.7 billion in 2020. Investors are pricing product aggressively based on growth opportunities. Cap rates for Class A product compressed by 20 to 50 bps in the second half of 2020, especially for assets with good credit and lease terms."
Jonathan Bryan – Executive Vice President

Figure 4: Cap Rate Comparison

Source: CBRE Research.

Supply & Demand

More than 12 million sq. ft of new development was completed in 2020, the fifth highest total in North America and the most as a percentage of total inventory at 7.3%. As a result, the direct vacancy rate increased by 70 bps to 7.4%. Transaction volume totaling 4.4 million sq. ft. in 2020 was up by 6.8% year-over-year, while net absorption was up by 5.9%.

E-commerce occupiers were most active in the market, accounting for 32% of all deals. 3PLs were second at 28.8%. While new development will keep vacancy rates above the national average, taking rents are expected be on par with 2020 for the foreseeable future.

Figure 5: 2020 Occupier Transaction Market Share

Source: CBRE Research.

Figure 6: Transaction Volume

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

Figure 7: Big Box Year-Over-Year Comparison

Source: CBRE Research.

Figure 8: Under Construction & Percentage Preleased

Source: CBRE Research.

Figure 9: 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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2020 North America Industrial Big Box Report & Outlook

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Contacts

James Breeze
Senior Director, Global Head of Industrial & Logistics Research
Research
+1 602 735 1939
Matt Walaszek
Director of Research
Research
+1 312 297 7686
John Morris
Executive Managing Director, Americas Industrial & Logistics Leader
+1 630 573 7020
Richard Barkham, Ph.D.
Global Chief Economist, Head of Global Research & Head of Americas Research
+1 617 912 5215
Spencer Levy
Global Chief Client Officer and Senior Economic Advisor
+1 617 912 5236