It’s All About Big Industrial Development

HOUSTON—As of first quarter, it’s all about development in the industrial market. According to JLL Houston, there is approximately 6.7 million square feet currently under construction. The top five largest industrial construction projects are greater than 500,000 square feet, in fact, they total more than 2.5 million square feet. This includes a mix of build-to-suit and speculative developments.

Speculative construction made up about 70% of new development in the last two quarters. In 2016 and early 2017, it accounted for only 45% of new construction. The construction pipeline is expected to continue to grow, thanks to sub-5% vacancy, the JLL report says.

Houston’s big three submarkets dominated first quarter leasing and construction activity. The northwest, southeast and north accounted for more than 77% of leasing activity and more than 90% of construction activity in the first quarter. Nine of the top 10 projects under construction fall into one of these three submarkets.

“Tenant requirements for high-quality, big box distribution space continue to strengthen the industrial market,” Richard Quarles, senior vice president, JLL industrial services, tells GlobeSt.com. “There is a lot of opportunity for developers who are able to secure land and deliver quality product. We’ll see construction activity continue to increase as long as market-wide vacancy holds at or below 5%.”

In that aforementioned active northwest submarket, two fully leased class-A industrial warehouse buildings totaling 232,950 square feet in Brookhollow West Business Park have sold for an undisclosed price. The seller was AIV Inc. and the buyer was a subsidiary of STAG Industrial Inc.

Completed between 2007 and 2008, Brookhollow West Business Park is home to three tenants and features 24-foot clear heights, a total of 40 dock-high doors, five drive-up ramps, 21% office finish and 277 parking spaces. The property is situated at 7140 and 7049 West Sam Houston Pkwy. North at the intersection of the Sam Houston Tollway (Beltway 8) and Highway 290 in the center of the submarket. The buildings’ location provides access to major thoroughfares and distribution corridors.

HFF’s investment advisory team representing the seller included senior director Trent Agnew and senior managing director Rusty Tamlyn, along with analyst Dane Petersen. Additionally, Stream Realty’s Jon Farris and Matteson Hamilton worked with the HFF team on the transaction.

“Brookhollow West represents the rare value-add opportunity in the industrial space due to the pending relocation of AIV to its new headquarters facility off Highway 290 and Telge Road in northwest Houston in early 2019,” Agnew said. “As a result, there was a tremendous amount of interest from investors that were drawn to the prospect that they could get their hands on some vacancy at a location considered to be the epicenter of the Houston industrial market within two newer buildings that possess all the specifications that future tenants will desire.”