TEXAS SNAPSHOT, FEBRUARY 2011

HOUSTON INDUSTRIAL MARKET

The National Bureau of Economic Research (NBER) announced that the recession officially ended in June of 2009, although cities across the country continue to struggle. Houston’s status as a major port city will give it an edge in strengthening the city’s ongoing economic wellbeing.

The Port of Houston covers approximately 35 miles along the Houston Ship Channel. It boasts an array of diversified public and private facilities that handle general cargo, containers, petrochemicals, dry bulk materials, project and heavy lift cargo, among others. Depending on the measurement, the Port of Houston ranks among the top three ports in the country for total tonnage.

In 2010, the Port of Houston did not experience as significant a downturn in activity as other U.S. port cities. Overall cargo activity was down approximately 10 percent, compared to another “top three” port, Los Angeles, which was down approximately 30 percent.

Current vacancy rates are at 13 percent with approximately 4.9 million square feet of space available. As we enter the first quarter of 2011, early trends in cargo indicate that a recovery is underway. The Port of Houston has just released a report confirming 15 percent growth of full containers year-over-year.  With the continued expansion of the Bayport Terminal over the next several years the Port of Houston will be well positioned to support increased traffic anticipated by the completion of the Panama Canal expansion. Houston’s 45-foot draft will support Panamax size vessels carrying up to 7,500 TEU’s (twenty-foot equivalent units). As the current vacancy is absorbed developers will reconsider the size and number of speculative warehouses that will be needed to support this anticipated increase in cargo.

Additional positive signs for recovery in this port submarket includes several large transactions involving third party logistics companies (3PL’s), as well as a 200,000-square-foot build-to-suit for Delta Chemical. Ozburn Hessey logistics, United DC and Nestle Waters have accounted for a large amount of absorption in this submarket over the previous 12 months.

In addition, increased demand for space from oil and gas service companies involved in the Eagleford Shale discovery in southwest Texas should add to the increase in activity in the southeast submarket.

One of the most intriguing developments in the metropolitan area is the announced plans for the development of Houston’s first state of the art intermodal center in Kendleton, Texas, 30 miles southwest of Houston. The CenterPoint Intermodal Center – Houston (CIC-Houston) is a master planned, rail served, 7.5 million-square-foot industrial park on 800 acres of land. CIC-Houston will provide a direct rail connection to the Lazaro Cardenas Container Terminal on Mexico’s west coast. The Lazaro terminal is one of only three ports in the Americas that can receive super Panamax container ships that require up to 50 feet of water for vessels carrying 8,000 to 13,000 TEU’s. The establishment of this inland port will provide an alternative to the congestion of the LA-Long Beach port facilities while providing direct rail service through Kansas City Southern to major cities in Mexico as well as Houston and throughout the Midwest and east coast of the United States. Located on US Highway 59, CIC-Houston will be the first intermodal center located on the future NAFTA highway. CIC-Houston will provide direct routes for Asian manufacturers from ship to rail to distribution center similar to the large intermodal centers in Chicago and Dallas.

Due to its position as the Energy Capital of the World, Houston’s downturn was slow to develop and as a result Houston will lead the country in the economic recovery. In 2009, the Port of Houston received over 7,200 ships from around the world. With a vibrant international community, represented by 95 consulates, Houston is well positioned for future growth. The combination of a world class port, an international air cargo facility, an expanding population and the development of a major intermodal center, Houston will become a logistical center for all types of commerce.

The long-term prospects for the southeast submarket that serves the Port’s container terminals as well as the Houston Ship Channel industrial complex are strong. Absorption of the current overbuilt situation will continue through 2011 with increase demand from the 3PL’s. New opportunities for the import and export of goods through the Port of Houston will ensure the continued growth and development of the Port of Houston far into the future.

— John Talhelm is senior vice president with Jones Lang LaSalle.

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