Border Boom Boosting Texas Metros — For Now
While tariff uncertainty has swept through the nation's industrial markets, the sector still booms at the Texas border, putting the state's two largest metros in pole position to benefit from explosive growth.
Both Houston and Dallas-Fort Worth are already reaping overflow benefits of policy that facilitated trade with Mexico, sending industrial players flocking to both sides of the border.
Efforts to bring even more manufacturing home could supercharge that spillover. But whether that mutually beneficial scenario plays out is up in the air as a sometimes confusing trade war is waged and smoke clouds the battlefield.
The ever-evolving tariff picture has companies at the border and elsewhere hitting the brakes on new projects, and Savills has warned the border region is at an “inflection point” as President Donald Trump goes back and forth on a permanent policy.
That same inflection point extends to Houston and DFW, according to Savills Research Manager Deandre Prescott, with some fearing good times rolling today could turn sour tomorrow.
“There hasn't been necessarily any data points as of yet to point to what actual impact [tariffs] are going to have, or if there will be an impact,” Prescott said.
But, he added, “uncertainty goes across Texas.”
Texas-Mexico trade generates more than $471B in gross domestic product annually for Texas alone, according to The Perryman Group, and the Texas government expects that cross-border trade will generate more than 10.9 million jobs and contribute $604.5B in GDP by 2050.
Expectations are high because trade value along the Texas-Mexico border in cities like Laredo, El Paso, Hidalgo and Brownsville rose 40% over five years, boosting new border industrial inventory by 18% over that same period as rents soared and vacancy plummeted.
Surplus growth flowed to cities like San Antonio, Dallas and Houston, in the form of large-scale distribution centers to handle all the goods streaming from Mexico. At almost $90B, Texas now outpaces every other state in the country in annual commercial construction spending by a wide margin, according to a report from construction aggregate supplier Twisted Nail.
Continued brisk border trade, especially if Trump administration efforts to turbocharge onshoring bear fruit, will mean even brisker business farther north as well.
“I would be shocked if Houston and Dallas didn't see some type of overflow from that,” Prescott said of the industrial growth at the border.
Yet many of the industrial projects now beginning construction were funded by Biden-era legislation, and worry is simmering that Trump administration tariffs could stifle future projects due to elevated material costs and general reluctance to pull the trigger until the picture clears.
“We are sitting on our hands right now, waiting,” Ric Campo, commission chairman of the Port of Houston Authority and CEO of multifamily REIT Camden Property Trust, said at a Greater Houston Partnership event this month.
No one is panicking for now, despite the era of build, build, build ending in both metros.
Industrial deliveries during the first quarter fell off considerably in the DFW and Houston metros, down nearly 14M SF between the two, according to Savills data. DFW had more industrial product in the pipeline than Houston, but the Metroplex’s more than 21M SF on the way was still nearly 10M SF less than 2024's total.
Houston had more than 16M SF in the pipeline during Q1, down 2M SF from a year ago.
Yet demand has been resilient, and vacancy rates in both metros came down in Q1 while leasing and net absorption continued to outpace new deliveries, Prescott said.
That is in part because the two cities are key hubs for trade as the state’s No. 1 and No. 2 biggest distribution hubs, thanks to Port Houston and DFW’s access to highways and air travel connecting it to the rest of the country.
Houston was the No. 1 metro in the country for overall exports last year as its port diversified its primary trading partners, according to a report from the Greater Houston Partnership. Mexican trade fell 13% last year, at $24.9B, compared to $31.9B with the Netherlands, the port's top trade partner, though the report says Mexico is its most integrated supply chain partner.
Meanwhile, 85% of goods made in Mexico cross a land border, either by train or truck, putting DFW in a key position to strategically reap the benefits of manufacturing south of the border.
Dallas-based Provident Industrial has a big presence at the border, announcing construction of the fourth phase of its Gateway Logistics Park in El Paso earlier this year.
Cities like Laredo and El Paso are the first touchpoints for goods coming into the U.S. from Central America, but Provident Southwest Director Chris Martin said Dallas is usually the next one.
“Dallas is the first main population center that a lot of these goods are going to go to if they're going east or to the Midwest,” he said.
Border industrial players have wondered aloud whether a continued boom in industrial hubs there could prompt some companies to relocate operations away from DFW and Houston in an effort to save money. Enrique Volkmer, an associate with Lee & Associates who regularly brokers deals in Laredo, said he has heard from clients that they could save 40% to 60% over Houston or Dallas rates by doing just that.
But Moody's Analytics Senior Economist Ermengarde Jabir said that is unlikely, as those cities serve a much different purpose.
“Houston or the Dallas-Fort Worth area are focused much more on final distribution,” Jabir said. “El Paso, McAllen, Laredo are border cities [that] are used as intermediary points for goods coming across the border to then make it to their final destinations.”
Rather than cannibalizing one another, industrial analysts expect continued industrial growth near the Texas border to strengthen the Interstate 35, Interstate 45 and Interstate 20 corridors.
“The Texas triangle cities ... provide a kind of obvious ending point, or even throughput, for product coming across the border,” Savills Industrial Research Manager Chris Bauers said.
