The industrial market has been Houston’s postpandemic darling, but zooming in closer, the manufacturing sector's real estate dynamics managed to outshine the rest of the asset class.

Under a new presidential administration expected to implement tariffs, emphasizing the importance of nearshoring and onshoring manufacturing, Houston’s manufacturing market could grow and vacancy could drop even lower than its current 1.4%, according to a JLL analysis.

By comparison, the overall industrial market had a 7.1% vacancy rate in the third quarter.

Houston has about 91M SF of manufacturing inventory, which accounts for less than 20% of the total industrial market, JLL Director of Texas Research Rachel Alexander said. The sector is so full because manufacturing facilities are expensive and require specialized building, meaning developers rarely construct the product speculatively, she said.

“There’s a limited supply, and it’s costly to build that type of space,” said Jordan Raney, Houston-based senior vice president of industrial for JLL.

Over the last few years, with construction costs rising, it wouldn’t have made financial sense to build manufacturing space based on market rents, he said.

But there is significant demand for Houston manufacturing real estate, according to JLL’s tenant data. Tenants searching for 3.8M SF of manufacturing space were considering Houston in September, the biggest requirement total by industry. The next largest was third-party logistics tenants, which were looking for 2.6M SF.

Manufacturing tenant requirements in Houston increased nearly 300% in the first half of 2024 compared to 2020, Raney said.

The December report isn't finalized, but Alexander confirmed that manufacturing still has the largest volume of requirements by industry. Those tenants considering Houston might not make the city their final choice, but it shows Houston’s attractiveness as a manufacturing market, Alexander said.

The Dallas-Fort Worth market has seen some big wins in its manufacturing market lately, leading to speculation that DFW will be a primary beneficiary of onshoring and nearshoring as Chinese companies look to set up manufacturing facilities in the U.S. to avoid tariffs proposed by President-elect Donald Trump.

But Houston shares some of its advantages, Alexander said.

“We’ve seen users in Houston, we’ve seen users in Dallas. We know both of those markets can be made within a day’s truck drive from the [Mexico] border,” Alexander said. “We know truck crossings are up in Mexico. There’s an incredible amount of industrial development going on both in Mexico and in the border cities.”

This means opportunity in Houston, depending on where tenants are looking to send their products upon completion and other factors, she said.

“They’re evaluating the cost to do business here, what the labor pool looks like, what the housing is, how business-friendly that it is,” Alexander said, adding that Houston has a leg up in those areas.

While developers are still unlikely to speculatively build manufacturing facilities, tenant interest in Houston could spur some custom development, Raney said.

“We’re continuing to see the demand,” he said. “With all these different trends of reshoring and advanced manufacturing, I would expect that we continue to see a really strong manufacturing demand over the next few years.”