But that pace of major manufacturer announcements won\u2019t continue, industrial brokers say. What\u2019s coming behind them is supporting third-party vendors looking for smaller buildings, augmenting an asset class subsector that was already in high demand.<\/p>\n
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Occupancy of industrial buildings between 50K SF and 250K SF is on an upward trajectory,\u00a0pushing up rental rates and drawing developer attention.<\/p>\n
Apple<\/a> is spending $500B on manufacturing<\/a> investments over the next four years, including building a new facility outside of Houston, it announced in February<\/a>. Tesla<\/a> in March\u00a0announced\u00a0plans<\/a>\u00a0for a 1M SF battery factory in the region, and the next month, Nvidia<\/a>\u00a0said\u00a0it will build a production plant in Houston<\/a> in partnership with Foxconn<\/a>.\u00a0<\/p>\n It would be nearly impossible for more technology giants to continue\u00a0that pace of announcements, said Drew Coupe, a Houston-based principal\u00a0at\u00a0Avison Young<\/a> focused on industrial tenant representation.<\/p>\n \u201cI don’t know that there are that many big movers of that size,\u201d Coupe said. \u201cThose are monsters.\u201d\u00a0<\/p>\n But that will allow Houston\u2019s industrial market to cater to the bread and butter of its tenant base as smaller vendors follow to be near the major companies, said\u00a0Carl Mueller,<\/a> an industrial real estate broker for Cresa<\/a>.<\/p>\n Leases from 20K SF to 250K made up 94.2% of all transactions during the first half, according to Avison Young\u2019s second-quarter report. Buildings between 20K SF and 100K SF have the lowest vacancy rate, at 5.6%, compared to 9.7% vacancy in buildings 500K SF or bigger.<\/p>\n The sweet spot is between 75K SF and 100K SF, JLL<\/a> Texas Research Director Rachel Alexander<\/a> said. Actual rents have grown 48% in the last three years for buildings in that size range, while all other industrial buildings have seen rent growth from 25% to 35%, she said.\u00a0<\/p>\n Manufacturing demand remains elevated. About 34% of tenants in the market in May were looking for manufacturing space, an increase from 10% a year prior, Alexander said.<\/p>\n While the brokerage isn\u2019t privy to all of the details of tenants in the market, many seem related to the AI and supercomputing industries.<\/p>\n \u201cQuite a few \u2026 look like they’re in support of data centers<\/a>,\u201d she said. \u201cSo not the actual data centers, but the components, the cooling, the racking, those types of materials supporting that element of growth.\u201d<\/p>\n JLL hasn\u2019t yet seen a wave of vendors following major movers, but it would be a natural next step, Alexander\u00a0said.\u00a0<\/p>\n The brokers cited Daikin\u2019s building of a 4.2M SF factory in Waller in 2017 that helped transform the once-rural county<\/a>\u00a0into a booming industrial and suburban hub as an example of what to expect.<\/p>\n The air conditioning manufacturer, which last year became the namesake of the Houston Astros\u2019 stadium<\/a>, employs 9,000 people in Waller. That is more than double the city\u2019s population.<\/p>\n \u201cThey were out in the middle of nowhere,\u201d Coupe said. \u201cNow they’re surrounded by all their vendors and all their suppliers. It’s going to be very similar here.\u201d\u00a0<\/p>\n Mueller said he expects to see particular interest in the Northwest Houston submarkets, noting the region is the largest, most mature market for advanced manufacturing<\/a> in Houston. It is also closest to where companies may need to distribute, Mueller said, citing Tesla\u2019s decision to lease a 1M SF building at Empire West Business Park<\/a> in Brookshire, near Katy.<\/p>\n Tesla announced plans this year to convert the building<\/a> into a battery storage manufacturing facility and build another 600K SF building for distribution and manufacturing.\u00a0<\/p>\n \u201cThey originally took that space in Empire West on a short-term deal because it was the closest thing they could really find to Austin,\u201d Mueller said. \u201cBeing in Northwest Houston, you’re closer to some of the other tech companies. As it\u2019s extended out further on [Highway] 290 \u2026 it\u2019s both the most mature and seen the most growth.\u201d\u00a0<\/p>\n The Northwest captured the most leasing activity so far this year, with nearly 7M SF leased, almost 4% of its inventory, according to the Avison Young report. The automotive sector claimed more than 24% of leasing activity, led by Tesla.<\/p>\n Although the huge manufacturers caused some spikes, the overall market conditions reflect a return to normalcy, Coupe said. This is demonstrated by the pace of new industrial development, which dropped this year to its lowest first-half total since 2018, the report says.<\/p>\n There is 13.8M SF of industrial product under construction in Houston, which is down from\u00a0more than 35M SF in 2022 but in line with prepandemic averages.<\/p>\n \u201cIt\u2019s healthy normalization,\u201d Coupe said. \u201cWe\u2019re not growing too fast. We\u2019re not out over our ski tips to where developers are just overdeveloping and building buildings that will never be absorbed.\u201d\u00a0<\/p>\n Developers are\u00a0seemingly taking note of\u00a0the demand trends.<\/p>\n This week, Lovett Industrial<\/a> broke ground on the second phase of 610 Business District, an infill business park in South Houston. Phase 2 will\u00a0consist of six new buildings totaling 537K SF, catering to smaller users that want to be close to Port Houston<\/a> and a qualified labor pool, a press release says.<\/p>\n<\/p>\n<\/p>\n