Houston Tops Cushman & Wakefield List for Industrial Markets

Houston was named the overall “winner” when it comes to market attractiveness when evaluated for five key tenant types, according to a new report from Cushman & Wakefield.

The report named the top markets in five niche classes: 3PL (Indianapolis); construction/building supplier (Charlotte); e-commerce (Kansas City); food & beverage (Columbus); manufacturing (Phoenix); and retail-wholesaler (Memphis).

Houston performed best across the spectrum, ranking first or second place in all categories, excluding primary markets.

Houston has had nine deals over 1 msf in the past few years and has thrived mostly in e-commerce and retailer/wholesalers’ activity, according to the report.

It has seen over 53 msf of new deliveries, along with solid demand, which brought vacancy down from the five-year historical average of 6.9% to around 6%, according to the report, which exceeds the national average of 3.6%, which means Houston is not as tight of a market as most others in the nation.

This “has likely contributed to the strong activity, they are seeing being a more competitive market,” Cushman & Wakefield said.

Drew Coupe, principal, Avison Young, tells GlobeSt.com that historically, Houston has also been a low-cost option on a national level for land.

“We have seen a massive increase in the amount of industrial space being built and absorbed over the past couple of years,” he said.

“Developers have flocked to Houston to provide cost-effective storage space for e-commerce and logistics groups, thus the users have followed.

“Houston has in a sense shifted from a “spoke market” to a “hub market” and we expect this level of absorption to remain the case for the foreseeable future, despite rising land costs and rental rates, as a result of the aforementioned demand.”

Christine Mastandrea, chief operating officer of Whitestone REIT, tells GlobeSt.com Houston is thriving because occupancy has been steadily rising.

“We’ll continue to invest in Houston, as we did with our Lake Woodlands acquisition late last year,” she said. “The area continues to benefit from both new families and national retailers looking to put down roots, and it’s a trend that has been occurring since before COVID.

“Houston is an extremely diverse city, leading numerous rapidly expanding franchises like Dough Zone and KPOT to expand here. Moreover, Houston is one of the most business-friendly markets in the entire country and that is something all companies are attracted to.”

She said it’s also “great” for finding labor and adding talent, and the “workforce is highly educated, so it offers all of the characteristics that businesses need to grow.”

Victoria Madrid, Vice President of Private Real Estate at CenterSquare Investment Management, tells GlobeSt.com that Houston has “no end in sight” for population and job growth.

While energy remains a dominant industry in Houston, the economy continues to diversify into other industries including aerospace, transportation and trade, life sciences, and biotech, according to Madrid.

“Near and rear shoring accelerated by the pandemic significantly increased demand in Houston due to its central location in the US and its major port presence,” she said.

The city is spending $3B to develop the 500-acre TMC Helix Park project, a world-class life science and biomanufacturing campus at the Texas Medical Center.

Matt Damborsky, Executive Vice President of Skanska USA Commercial Development, tells GlobeSt.com, the Energy Corridor and Discovery Green to Montrose and everything in between is seeking more innovative and sustainable products.

Indy Has Least Expensive Market for 3PL Workers

Indianapolis emerged as a clear leader, ranking fourth for the most 3PL leasing activity over the three-year period – trailing only primary market leaders Inland Empire, Atlanta, and Chicago. Top recent tenants there include U.S. Postal Service, C.H. Robinson, XPO Logistics, Geodis, and FedEx.

Indianapolis remains the least expensive market for production workers in the Midwest, meaning machine operators and assembler teams that may want to be close to their distribution facilities will also find cheaper labor.

Construction/Building Suppliers Like Charlotte

Charlotte and its robust population growth posted the second-highest construction/building supplier demand totals with over 2.5 msf of transactions completed in 2020-2022, ranking fifth in the nation for this lease type.

Its yield exceeds the Inland Empire, Chicago, Los Angeles, and the PA I-81/I-78 Distribution Corridor.

Charlotte’s population ballooned by 7.7%, more than double the US average from 2016, and further population growth is expected. Therefore, “the metro will likely require further developments of single-family homes and multifamily projects,” according to the report. “This will lead to the need for more construction and building supplies going forward.”

The recent surge in industrial development and new Class-A buildings satisfies the vigorous demand. A growing consumer base is also anticipated.

Kansas City Centralizes E-Commerce

Being the “center of it all” on the US map, Kansas City led the emerging markets in e-commerce leasing activity, with over 6.1 msf of leasing activity from 2020-2022.

“As we saw digital sales skyrocket during the pandemic, and more consumers preferring to shop online, the need for space to hold those goods has become paramount,” according to the report.

Kansas City had five new deals over 500,000 sf completed over the 2020-2022 period, and top tenants included Boxycharm and Overstock.com

KC boasts lower-than-average rents and lower labor costs compared to most of the country—recording an overall asking rent of $5.53 psf at the end of the fourth quarter of 2022. This is more than $3 psf lower than the national average from the same time.

Columbus’ Lower Cost of Living Boosts Food & Beverage

Columbus ranked No. 2 among non-primary markets, with 4.1 msf of deals by food and beverage firms, with deals mostly in the 100,000-500,000-sf range, putting it on par with Central New Jersey and was more than double that of Los Angeles.

Columbus also boasts a lower cost of living, and business costs are below the national average. Its unemployment rate of 2.7% is well below the national average.

Manufacturing Wages in Phoenix Better than California’s

Phoenix is an emerging market for manufacturing leasing activity. It is roughly a five-hour drive from the Los Angeles, Inland Empire, and San Diego markets, and is much less expensive. Tenants like inexpensive, reliable energy and labor, as well as low worker’s comp costs in a right-to-work state.

Additionally, Phoenix wage rates for production workers is at $18.40 per hour, slightly above the national average but well below the rates of the port-proximate California markets that are pushing $21 per hour.

Memphis Can Quickly Deliver Goods for Retailers

Memphis boasts a strong infrastructure and a lower cost of operations compared to many major markets. Approximately 60 million people can be reached in one day’s drive from Memphis, and 73% of the US population can be reached in two day’s drive.

This makes it an attractive option for those looking to deliver goods to consumers quickly.

As the local industrial market sustained growth amid strong demand, rent growth swelled by 31% over the last three years.