Houston's red-hot industrial sector is getting even hotter. Best Buy has inked a deal for a 550K SF distribution facility in Missouri City.

Long overlooked for Dallas, Houston is becoming a hub of distribution. Best Buy's new distribution center will service 60 stores in Texas and Lousiana. Amazon, Walmart, Home Depot and IKEA have all opened distribution centers in the Houston area recently. That is just the tip of the iceberg. Nearly a dozen other big-box distributors are shopping the Houston area for warehouse space, according to NAI Partners partner Michael Keegan.

Though there is a big appetite for large distribution spaces, Houston's industrial sector does not have the product.

"There's only one vacant building that's over 500K SF. All these industrial buildings are going to have to be built, there's no spec space," JLL Senior Vice President John Talhelm said.

And building it they are. Houston-based Pontikes Development is building a 3M SF industrial park in Baytown. Oakmont Industrial Group will turn a 42-acre parcel in West Ten Business Park into 673K SF of industrial spec warehouse space. Liberty Property Trust is breaking ground on two new industrial buildings totaling 700K SF at Port Crossing Commerce Center.

"Houston's, and Texas', population growth is a big driver. Big-box distributors are choosing Houston because they can reach 50% of the population of Texas within three-four hours," Talhelm said.

A three- or four-hour drive is the sweet spot in large part due to the trucking industry. Drivers have a legal limit to how long they can be behind the wheel. A four-hour route allows the driver to stay under the limit and be home for dinner on a round trip.

The Port's growth is also a major factor. With the widening of the Panama Canal, the Port of Houston can offer direct service from China to Houston. Chinese ships now account for 24% of the port's revenue from container terminals, according to Talhelm.

A growing market with little spec space is expected to tighten the market even further as users begin to occupy the space. An uptick in user requirements and sub-5% vacancy will likely push rents. Houston's industrial sector logged its 69th consecutive quarter of growth in Q3.

"For Houston's industrial sector, it's positives all across the board," Talhem said.