Texas ranks second only to New York as the state with the most commercial real estate development activity. While Dallas gets much of the attention for industrial projects, Houston also has an active and growing industrial market. The city’s surging population and booming oil and gas industries have made it an attractive market for developers and end users. While the industrial real estate picture is strong today, it was bleak just six short years ago.
When the Great Recession hit in 2008, it sent shockwaves across all sectors of the real estate industry nationwide, including industrial. That same year, Texas was hit by Hurricane Ike, one of the costliest weather events ever for the state. The collision of these two disasters created a perfect storm to slow a booming market. Houston weathered the storm, thanks to an industrial market that is as close to “recession proof” as one can get. Houston has not experienced a year of negative absorption in Class A industrial space since 2004.
Greenspoint Business Center A, located at 11710 North Freeway, features 54,818 square feet of distribution center and office space, seven truck bays and 119 parking spaces. It was completed in April 2008.
A prime example of this demand can be found at Greenspoint Business Center. Located in the Greenspoint District, about 15 miles north of downtown Houston and a few miles from George Bush Intercontinental Airport, the 85-acre site appeared to be a prime location for a variety of business needs. Demand for airport and freight-accessible industrial property along Interstate 45 (also known as the North Freeway) was not being met, and the site offered proximity to logistics in a world-class park setting.
Two years before the Great Recession, Industrial Developments International (IDI) purchased the land. It began building Greenspoint Business Center in 2007. The company, headquartered in Atlanta, has developed and acquired 170 million square feet of industrial space and completed more than 700 industrial facilities in the U.S., Canada and Mexico. Even with the recession imminent, it was clear to IDI that this north Houston submarket was evolving into an industrial hotspot. The company accordingly acquired more land than it immediately required for its Class A park and marketed the excess land for build-to-suit and future inventory development.
The bulk of IDI’s marketing efforts went into showcasing the quality of the development as well as the logistical benefits of its north Houston location. The company also partnered with the Greater Greenspoint Redevelopment Authority (GGRA) and received tax increment financing (TIF) to help subsidize the costs of infrastructure development, including public roads and water systems. Building out infrastructure of this scale all at once, in an area that was previously undeveloped, was a challenging effort. Rather than clearing the land all at once, IDI cleared it in phases to limit disruption to the natural environment.
The 106,700-square-foot Building B, at 51 Esplanade Blvd., has 21 truck bays, 122 parking spaces and a 120-foot truck turning radius. It was completed in June 2008 and features both office and distribution center space.
“The Greater Greenspoint Redevelopment Authority was founded to create and ensure ongoing economic prosperity for Greenspoint’s businesses and an exceptional quality of life for its employees and residents. We are proud to support private-public partnerships, like the one with IDI, to help make our community a more attractive place to live, work, visit or invest. IDI has exceeded our expectations and we look forward to their continued success,” said Sally Bradford, GGRA executive director.
As the Houston area grew and companies needed distribution space strategically located to serve Houston and beyond, the north submarket was primed for growth. Tenants agreed. Within six months of completion of the first three buildings at Greenspoint Business Center in 2008, at least one tenant had signed in each, occupying between 15 and 75 percent of the building. Even at the peak of the recession, market demand in Houston continued, despite disheartening national trends of financial austerity.
In March 2009, hardly an easy time for investment in a new market, IDI established a Houston market office and quickly saw demand surge, especially for institutional-grade developments along Beltway 8 like Greenspoint Business Center. The reason? First and foremost, location. In addition to its prime location near the airport and at the crossroads of two major thorough-fares, I-45 and the Beltway, Greenspoint also provides the modern logistics space that many tenants demand, a strong, diversified workforce nearby and a solid fiber optics network.
The 244,557-square-foot Building D, at 101 Esplanade Blvd., features 57 truck bays, was designed to serve large local and regional distributors and was completed on July 1, 2008.
As the recession faded into the rearview mirror, Houston continued on its growth trajectory. Unlike most other major markets, Houston has no zoning requirements. Rather, land use is determined by “highest and best use,” with any potential use required to pass a series of tests. Typically, the use must be legally allowable, physically possible, financially feasible and maximally productive. So, not only were industrial real estate developers competing against each other, they also were competing against other uses, such as apartments, for undeveloped land. Monitoring the market and providing buildings that were unlikely to compete with each other enabled IDI to succeed in its first speculative land purchase in the market.
Greenspoint Today and Tomorrow
Greenspoint Business Center now consists of five buildings totaling more than three quarters of a million square feet. Buildings A, B and D are 93 percent occupied. Tenants consist primarily of local and regional distributors, including retailers, wholesale providers, food distribution providers and oil field service companies. While the buildings are similar in appearance (all were designed by Macgregor Associates Architects), each was conceived to serve a different type of tenant. Building A, for example, features smaller spaces (ranging from 7,500 to 14,000 square feet, most of which are around 11,000 square feet), with an 18-foot minimum clear height, high-quality office finishes and an 80-foot-deep truck court. It is occupied mostly by service providers, including food distributors, wholesalers, light manufacturers, environmental engineers, security providers and oil field service companies.
Greenspoint Business Center is located between Interstate 45 and Beltway 8 in north Houston, near George Bush Intercontinental Airport.
Building B is primarily a distribution center, with tenant spaces ranging from 26,000 to 53,000 square feet, a 24-foot minimum clear height, 26 dock doors, and a 120-foot-deep truck court. Building D is for tenants with larger local distribution needs and some regional distributors; tenant spaces are 80,000 and 165,000 square feet with a 30-foot minimum clear height. It features a cross dock configuration with truck courts that range between 120 and 125 feet deep and has 60 dock doors.
Greenspoint’s two newest structures, Buildings C and E, delivered in May 2014, currently have space available. Each serves a unique tenant base. Building C is designed to serve tenants with smaller distribution space needs, with a 24-foot minimum clear height, 26 dock doors, a 120-foot-deep truck court and tenant spaces ranging from 25,000 to 106,000 square feet. Building E serves those needing larger (around 60,000 to 250,000-square-foot) cross dock distribution space, with truck courts ranging from 120 to 125 feet deep and ample dock doors.
Two land sites remain at Greens-point Business Center for sale as inventory or for build-to-suit development. One site can accommodate a user needing up to 345,000 square feet with trailer storage; the other can accommodate a smaller user needing up to 54,000 square feet.
In addition to these buildings, IDI’s recent merger with Verde Realty supplemented the company’s portfolio with four additional buildings in Central Green, a few miles east of the Greenspoint District, that match the quality of IDI’s previous inventory. These include Central Green Corporate Center Buildings 4 and 5, each consisting of 128,900 square feet, and Central Green Corporate Center Buildings 6 and 7, each 129,100 square feet. IDI now has 1.3 million square feet on the ground in this growing market. With the acquisition of a land site in northwest Houston at the end of 2013, the company also owns 53 acres of inventory land in Houston where it can develop an additional 850,000 square feet.
Houston Continues to Grow
While IDI has had a Houston office since 2009, the merger with Verde doubled the company’s “on the ground” presence there overnight. The firm now has additional personnel with the local expertise to thoroughly understand the local market and identify trends and upcoming opportunities there. While no one can predict the future, the company recognizes that Houston is poised for more growth.
Consider the following: Houston now has approximately 550,000 more residents and well over 200,000 more jobs than it did before the recession. The oil and gas industries continue to expand. While the market has seen much new construction during the past few years, it hasn’t hit its saturation point yet and has not been overbuilt; the vacancy rate in 2013 was only about 5 percent.
In fact, the market is seeing increased demand for Class A space with modern functionality. Between the first quarters of 2012 and 2014, about 4.7 million square feet of institutional quality product has been delivered to the north and northwest submarkets. Of that, about 74 percent has been leased. Most of what has not been leased yet was delivered after the second quarter of 2013. Houston also has high preleasing numbers. As of the end of the first quarter of 2014, about 4.2 million square feet of institutional quality product was under construction in the north and northwest submarkets, and about 20 percent of that has been preleased. As Houston’s economy continues to grow and diversify, these numbers can be expected to remain on an upward trend.
While Houston’s north and northwest submarkets remain popular, readily available land in these submarkets is becoming more difficult for developers to find. Many tenants and developers therefore are starting to eye the west submarket, specifically Katy. This submarket can easily serve the booming population growth in Houston, San Antonio and Austin. As the Houston market continues to expand westward, IDI expects industrial development to follow that growth.
One of the keys to success in industrial development is having the right people who understand local dynamics. Greenspoint Business Center and IDI’s Houston presence exemplify this practice. First-hand market knowledge allows developers to identify trends and provide long-term value to tenants and the local community. While the future of the Houston market looks positive, industrial real estate still comes down to three very simple factors: the right building, in the right location, at the right time. As IDI found with Greenspoint, however, if the building is right for the tenant and is in the right location, the timing doesn’t always have to be perfect.
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