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Houston’s Industrial Market Still Slated To Perform Well In 2020

Surging demand has some developers struggling to keep up new warehouse supply in Atlanta.

Houston’s industrial pipeline is anticipated to deliver 11.6M SF in 2020, making it the fifth-most-active industrial market in the U.S. for the year, according to a new analysis.

Using Yardi Matrix data, CommercialCafé compiled a list of the most active industrial markets in the country, based on expected completions of industrial projects.

If the 11.6M SF estimate proves accurate, that would be a 33% increase in square footage from 2019, when Houston’s industrial market added a total of 8.7M SF.

The biggest project expected for delivery is the 784K SF Building 10 of the Bay Area Business Park in Pasadena.

So far, Houston’s industrial real estate market has been relatively unscathed by economic volatility, according to Nathan Wynne, a vice president within CBRE’s Industrial Services group.

"Ever since the news on the economy has hit, we are still seeing deals out in the market, and a lot of activity,” Wynne said. 

The coronavirus outbreak, which was officially designated a pandemic by the World Health Organization on Wednesday, has caused major disruption to global markets over the past two months.

The effects of that economic volatility have trickled down to the commercial real estate sector, resulting in falling share prices for groups such as hotels, brokerages and REITs. The Federal Reserve cut interest rates March 3 in an emergency measure to stabilize the market.

Wynne said there was a noticeable trend of flight to quality during the first quarter, exacerbated by more supply entering the market. Some industrial deals have also become more complex, as tenants seek amenities that increase efficiency.

“We're seeing tenants moving out of B and C product, into A,” Wynne said.

“As long as we're seeing deals and seeing tenants grow and expand, and get more sophisticated, and that's exactly what we're seeing now, it's really hard to predict what's going to happen over the next 18 months. But as of now, we still feel very confident in industrial and its ability to continue to perform well in Houston.”

California’s Inland Empire is expected to lead the nation in industrial completions, with 26M SF slated to come online in 2020. Inland Empire is a metropolitan area in Southern California, inland and adjacent to Los Angeles.

Dallas came in second on the list, with about 23.5M SF anticipated for delivery in 2020. New Jersey and Chicago ranked third and fourth on the list, coming in at 14.5M SF and 11.9M SF, respectively.

Overall, U.S. industrial completions are expected to increase by 29% in 2020, totaling 186M SF across 627 properties.

The health of the industrial sector, in comparison with other asset classes, is partially due to the rapid growth of the logistics industry, centered around the distribution of consumer goods.

“There's been a lot of capital that has needed to be deployed, and industrial has always, at least over the last few years, has been a very attractive play, based on the activity and the absorption rates and growth in the sector,” Wynne said. “That's contributed significantly to the supply that we're seeing, as well as this trend of flight to quality.”

Wynne is optimistic about the industrial sector in Houston, largely because of forecasts for significant population growth, which will continue to drive the demand for consumer goods.

“I think it'll continue to propel Houston in the right direction,” Wynne said.