Nation’s Warehouse Construction Boom: Avison Young Report: Texas a Major Player

Avison Young principal Bob Berry, industrial broker in Houston.

In Houston, Across the nation, logistics-focused industrial facilities can’t be built fast enough and that’s great news for Texas. The Lone Star State is on the receiving end of a nationwide industrial building boom, accounting for 50 million sq ft of the nation’s 274 million sq ft currently under construction, over 18% of the entire national pipeline, as stated by Avison Young’s 2019 Global Industrial Report.

Between the first quarter of 2018 and the first quarter of 2019, 272 million sq ft of industrial space was delivered across the United States. Another 274 million sq ft is on the way. Dallas led the entire nation with 31 million sq ft under construction, nearly double Houston’s 15.5 million sq ft industrial pipeline. Together Austin and San Antonio area are adding nearly 4 million sq ft of industrial space in central Texas.

Despite the rapidly growing supply of industrial facilities, the average U.S. industrial vacancy rate was unchanged at 5%, held back by a lack of available space, as stated by Avison Young’s report.

“Nearly all industrial markets remain supply-constrained and, in spite of added construction, e-commerce and other growth factors will keep industrial vacancy in the single digits over the next 12 months,” Avison Young president of U.S. operations Earl Webb said in a press release.

A new type of supply chain driven by ecommerce giants is demanding a different type of facility that many of the nation’s largest industrial markets simply don’t have enough of. Tenant competition for quality and new space boosted rents by 63 cents per sq ft year-over-year to $8.07 per sq ft on a triple nets basis. Nationwide, rents remained flat or increased in 40 of the 46 markets monitored by Avison Young. That’s led to a boom in development, much of it speculative.

On the flip side, Dallas’ nation-leading industrial development is 44.7% preleased. Houston’s own industrial development pipeline is considerably less spoken for at only 28.3% preleased, putting the Bayou City below the national prelease average of 36.5%. Year-over-year, Dallas’ vacancy rate rose 120 bps to 6.8% while Houston’s rose 70 bps to 5.5% as each metro balances out new and outdated industrial product. The Dallas industrial market had record absorption of 23.4 million SF.

Healthy fundamentals in nearly every market across the country pushed investor interest to record levels. Rising rental rates and red-hot demand drove the average sale price of industrial space up $15 per sq ft to $116 per sq ft at a steady 6.6% cap rate. In total, the nationwide investment sale volume rose nearly $4.5 billion year-over-year to $54.9 billion, as stated by Avison Young.

At a media forum earlier this year, Avison Young industrial broker Bob Berry of Houston said industrial construction in Houston was near record highs.