Supply Chain Houston: One size does not fit all

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March 10, 2017

This is the second in a two-part series focused on exploring factors that make Houston a compelling destination for warehouse, distribution and fulfillment centers and what each of Houston’s top industrial submarkets have to offer developers and end-users from a supply chain perspective.

As discussed in the first part of this series, Houston makes a strong case as a link in major U.S. and global supply chains. However, the complexity of distribution and fulfillment site selection decisions can make pinning a supply chain strategy to the ground difficult. The implications for a business can be significant, and supply chain networks are far from “one size fits all.” Just within Houston, companies are faced with decisions in the site selection process that could drastically affect their distribution strategy. Below is an examination of Houston’s top industrial submarkets from a supply chain perspective.


With close to 4.1 million square feet of new supply delivered in 2016, the northwest industrial submarket contains a commanding 28.1 percent of Houston’s industrial inventory. The northwest continues to perform well as a high volume of new product delivers and strong demand from the consumer goods sector drives absorption. High demand has driven asking rents to new levels and at $0.63 per square foot NNN, are the highest in the metro by a wide margin.

One of the submarket’s most attractive qualities is its access and reach to the rest of the state. Bounded by Interstate 10 and U.S. Highway 290, and proximate to other major thoroughfares including Interstate 45 and the Grand Parkway (SH 99), the northwest benefits from unparalleled connectivity to major population centers outside of Houston. This serves as a strategic advantage especially for the location of e-commerce or regional fulfillment centers.


The southeast, Houston’s second-largest industrial submarket, is a sought-after location because of its proximity to the Port of Houston and demand from the petrochemical boom occurring along the Gulf Coast. For companies deeply tied to activity at the Port of Houston, the southeast industrial submarket offers unmatched proximity to shipping-based supply chains and global export networks. The southeast has outperformed all other submarkets on many fronts because of this.

The southeast submarket saw significant leasing activity and strong net absorption through the fourth quarter of 2016. Following an overall strong year for leasing activity, net absorption totaled 1.3 million square feet in the fourth quarter, the strongest submarket by far in this category. Leasing activity in the southeast has been highlighted by major trends in the market, derived from demand in both the consumer goods and third-party logistics (3PL) sectors. The submarket is poised to stay largely insulated from distress in the upstream sector, as its location near the Ship Channel and the downstream upswing provide a strategic advantage. Landlord-favorable conditions are likely here to stay for 2017.

While the southeast has several persuasive supply chain characteristics, it lacks the interstate connectivity of west Houston, which provides ease of access to other major population centers. With only one main roadway (State Highway 225) connecting the Port’s container terminals to the Houston MSA, the southeast can present challenges to the distribution of goods beyond Houston. Moreover, the southeast industrial market does not boast the population density of west Houston.


Houston’s southwest industrial submarket has emerged as a viable option for developers and large users who have been priced out of the northwest and southeast submarkets but still desire easy access to major transportation corridors and infrastructure. Lower average rents than the northwest and southeast make the submarket attractive to tenants. The submarket’s growing popularity is evidenced by its vacancy, which has been trending down since 2009 and settled at 4.9 percent at the end of 2016. The submarket saw 932,878 square feet of positive net absorption in 2016 but ended the year with relatively muted fourth quarter leasing activity. While the southwest submarket continues to be landlord favorable that position may weaken in 2017 if the submarket doesn’t see an uptick in new-tenant demand.

While it may not be a significant warehouse or fulfillment center market today, expected population growth and median household incomes of the surrounding Fort Bend County, coupled with solid connectivity and lower rental rates, make it a distribution market to watch.

Port of Houston

No Houston supply chain conversation is complete without examining the city’s port. A key competitive advantage in Houston’s position as an export leader, the Port of Houston Authority handles 68 percent of containerized cargo in the Gulf of Mexico and is the number one port in the U.S. by foreign waterborne tonnage.

It is also the sixth ranked U.S. container port by total TEUs (Twenty-foot Equivalent Units). The Port of Houston has two container terminals: Bayport and Barbours Cut.

As it stands today, the Bayport Container Terminal encompasses 175 acres and 3,300 linear feet of waterfrontage. The terminal can currently handle 900,000 TEU and is equipped with six Post-Panamax and three Super Post-Panamax cranes. When completely built out in 2018, the Bayport Container Terminal will encompass 376 acres, have 7,000 linear feet of waterfrontage and capacity for 3 million TEUs.

Build out of the Barbours Cut Container Terminal is also on track to be completed in 2018. Today, the terminal encompasses 235 acres and has 6,000 linear feet of waterfrontage. The capital improvements yet to be completed include the expansion of the terminal’s handling capacity from 1.2 million TEU to 2.5 million TEU, as well as the addition of 12 Super Post-Panamax cranes.

The Port of Houston is the number one port in the U.S. by foreign waterborne tonnage.

Other Port of Houston improvements include the deepening of the operating draft from 40 to 45 feet. With these improvements, the Port will be able to accommodate fully loaded vessels of up to 8,000 TEUs. There has been consistent growth in the number of containers the Port has handled over the last several years; and in 2016, containerized cargo at the Port totaled approximately 2.18 million TEUs.

The Port of Houston is an undeniable economic engine for the Houston metro area. When combined with the city’s multimodal transportation infrastructure, population catchment area, business-friendly environment, and available Class A industrial options, Houston is a strategic and beneficial link in supply chains.

So what does your supply chain need? Is connectivity to population centers most important to your bottom line? Is proximity to a major port paramount to your operations? Or perhaps affordability is your number one priority? Whatever’s driving your real estate decision-making, our JLL industrial experts can help pin your supply chain strategy to the ground and position your business for long term success.

For more on how population growth and consumer goods are impacting Houston’s industrial market, click here.

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