Houston Industrial Rents Reach Record Highs As Port Traffic Soars And Supply Chain Woes Linger
Houston industrial rents are the highest on record with demand for e-commerce continuing to rise and a near 40% increase in freight coming into the city's port.
Rental rates overall in the first quarter of 2022 in Houston were 63 cents a SF per month (or $7.56 annually), with the Southwest market seeing the highest rents in the city, at 73 cents per SF or $8.76 annually. That citywide average is just over 3% higher than the previous quarter, and up 8% year-over-year, according to new data from Savills. Twenty-foot equivalent units, the metric used to measure the volume of shipping containers, are up 37% year-over-year at the port. Similarly, vacancy has been on the downswing, now at 6.8% versus 9.1% in Q1 2021.
Nate Han, the Texas and Southwest region research manager at Savills, told Bisnow supply chain issues on the West Coast have caused suppliers to turn to the less expensive answer of delivering to the Gulf Coast and shipping by land from there, though companies are also turning to ports in the Carolinas and Florida. Han said about 1 million containers have been rerouted from the West Coast to the Gulf Coast amid delays.
Because industrial tenants are facing high construction costs, low vacancy and supply chain delays, they are being advised to start their search for a new space much sooner in advance of the end of a lease, Han said.
Despite the presence of the port, Houston is not traditionally the industrial leader in Texas. That title instead goes to Dallas, which currently has almost 70M SF under construction, compared to Houston's 18.9M SF. But Han said Houston is on the rise.
"Overall capacity wise, the Port of Houston has not been a major market," he said. "But with rerouting [and] business-friendly environments, Houston has been growing a lot. We are anticipated to see this growth for the next, I'll say, two to three years."
Savills credits the strong growth to the increasing number of goods being rerouted to the Gulf Coast from the congested West Coast. High demand for e-commerce, material distributors and third-party logistics have made developers bullish on Houston's future, it said.
"With strong demand and construction activity amid supply chain disruptions, positive momentum in the Houston industrial market will be sustained for the medium to long term," Savills states in the report.