Houston's Industrial Sector Shifting From Manufacturing To Distribution
Long known for its large base of manufacturing, in recent years Houston’s industrial sector has been moving more toward distribution. Companies signing larger leases are buoying the industry during tumultuous times and keeping the property type strong while other Houston segments suffer due to oil prices.
“A lot of people thought with the decline of oil, the market would get much softer, and it did in certain product types, specifically manufacturing buildings like crane-served and crane-capable assets, but as a whole vacancy numbers remained really low,” Finial Group CEO Keith Bilski said.
That is partially thanks to Houston stealing distribution activity from Dallas. Historically, product came into the Port of Houston and was put on rail to Dallas and shipped around the region from warehouses there.
Until recently, Houston was a small distribution market, with about half its industrial inventory dedicated to that property type.
"[That] is atypical. Houston has a lot of 20k-40k SF tenants. That model is changing in the last five to seven years. Houston’s seeing much larger tenants, which has experts asking why,” according to Bilski.
Mega-tenants like Amazon, Daikin and IKEA have inked deals worth millions of square feet throughout the Houston MSA. Bilski said this segment is growing because, “in general companies have found Houston a pretty business-friendly place to be.”
“Houston has a low cost of employment thanks to the low cost of living. As companies look at establishing facilities in the South, Houston has a lot of attributes to secure them. The ports, the airports, rail access and plenty of qualified workers at every skill level are major factors.”
But Houston’s gain is not Dallas’ pain. Bilski says, “The irony is that Dallas’ market is as good as it’s ever been. It’s not zero-sum. Both cities are serving a quickly growing state.”
As action in the Permian begins to pick up again, the industrial sectors in every major Texas metro are prepping for new business. “Permian will help us the most where we need it the most, in manufacturing and crane-capable buildings. I don’t know if we’ve felt it yet, but the general theory is we should.”
With new demand from distribution, continued population growth and oil slowly crawling back, the sector’s outlook looks promising. Hear more from Keith Bilksi and two panels of experts at Bisnow’s Industrial Renaissance event on Feb. 28.