Large Distribution Warehouse Space in Texas? Now is the Time to Pick Houston!Posted
I have written before that there is an amazing amount of new construction of Houston multi-tenant distribution warehouse space projects. This means that, for the first time, there is an excellent selection of LARGE space all over the Greater Houston area. As of today, a company looking for more than 100,000 sf of contiguous distribution warehouse space (previously occupied space termed “2nd generation space” or new construction termed “never before occupied”) will have a choice of over 50 projects to consider. Also, for the first time, spaces are available in the following geographic Houston areas in large increments AND in all four segments of Houston:
- Northwest and southwest Houston, often termed the “silk stocking” areas
- North Houston area near Bush Intercontinental Airport
- South Houston area, south of Reliant (NRG) stadium
- Northeast and southeast areas near the Port of Houston.
In the past, when a business wanted to come to Texas for a distribution location, Dallas was their choice. There, larger projects were being built (500,000 sf to 1,000,000 sf) and many times the central location in the State made sense from a logistics standpoint. Houston historically has been the center of the smaller space availabilities (less than 100,000 sf) and a center of manufacturing facilities rather than distribution warehousing. This has changed!
Looking at “available distribution warehouse LEASE properties” today, as outlined above, there are plenty of alternatives in the 100,000 sf + range, however, there are also more than 10 alternatives in excess of 200,000 sf, with more to be announced. There are actually several alternatives, at the time of this writing, in excess of 400,000 sf of contiguous space in one building … amazing for Houston! What we still do NOT see here are individual buildings for projects larger than 500,000 sf, like those found in other major distribution centers such as Dallas, Phoenix, Chicago, etc.
There have been several recent announcements of large space being occupied in these Houston projects so apparently the word is getting out! Developers of large Houston area distribution warehouse projects are looking pretty smart right now.
Additionally, rental rates still seem to be holding firm and (fortunate for developers) we are not seeing much “free rent” offerings except for the deals being made for much larger space (200,000 sf +). Asking rental rates today vary from a low around $.40 psf/mo NET, to highs near $.60 psf/mo NET for the “rear load” projects (those with a higher interior finish). As of this writing, the typical rate for a 50,000 sf space runs $.42 psf/mo to $.45 psf/mo. NET. New space, of course, is more expensive than previously occupied (but still nice) space and generally comes with a generous Tenant Finish Allowance, the amount being negotiable. At this time, expenses comprised of taxes, insurance maintenance and management (in a Net Lease) generally run $.15 psf/mo to $.20 psf/mo, which is an additional charge to the Tenant’s lease rate. Landlords are generally looking for a five-year lease and are not typically pushing for longer lease terms (their pro-forma typically anticipates rental increases over the first 10 years of the project) unless there are specific rental rate increases built into the primary lease term.
It’s an exciting time in Houston right now. It’ll be very interesting to observe how this market handles this new space availability. History shows that there is a definite “cycle” in the supply and demand for industrial distribution space. Stay tuned ………….!
Michael Hill Properties offers more than 40 years of experience in brokering commercial industrial properties, such as distribution warehousing and manufacturing, for sale and lease in the Greater Houston Area as well as outside of Houston. For more information on Michael Hill Properties, visit mhprop.comor call (713) 960-6060.