Port Stirs Healthy Recipe for Rent Growth
The Port will grow despite current trade discussions due to several factors including a worldwide expansion in the middle class, which will coincide with improved living standards in developing countries.
HOUSTON—The Port of Houston is poised to grow in the long term despite current trade discussions. This is due to several factors including a worldwide expansion in the middle class. This growth will coincide with improved living standards, resulting in rising energy use in many developing countries as people develop modern businesses and gain access to autos, appliances and air conditioning, according to a recent report by CBRE.
“The port market of Houston is very strong,” says CBRE senior vice president Tom Lynch. “The combination of healthy tenant velocity, low vacancy and limited land sites for development create an ideal recipe for rental rate growth and an increase in development costs.”
Houston’s economy has shifted away from a total reliance on energy toward a partial global trade focus via the Port of Houston for a couple of reasons. Approximately 170 million tons of cargo traded through the Port during 2017, earning the number one rank in the country by foreign waterborne tonnage.
And, the Port generated $265 billion during 2017 in total annual economic activity, according to the Greater Houston Partnership. This includes adding 1.2 million jobs, creating $5 billion in tax revenue and paying $66.7 billion in personal income statewide.
Fundamentals such as consumer reach and logistics make this global growth possible, according to CBRE research. Nearly 142 million consumers are within a 1,000-mile radius of the Port. Supporting this logistical bedrock is the Houston airport system, extensive railway access, well-developed sea port and NASA’s Mission Control. These physical assets signal that Houston holds another new generational position of strength in the sea and air global trade shipping lanes of coming decades, says CBRE.
The growth of global access and industry diversification in Space City has caused a quiet shift in the area’s economy which has long been tied to energy. While that industry shed approximately 85,000 payrolls during the recent crude pricing crunch, the Port buttressed the region from severe economic downturn as its global trade carries an economic impact greater than $260 billion, reports the Greater Houston Partnership, and on an annual basis created more than 148,000 jobs statewide since 2010.
Due to the domestic unconventional drilling boom–notably fracking in the Permian Basin and Eagle Ford in West and Northwest Texas–an abundance of crude in the market allowed Houston to shift from an import-based economy to an export-based one during 2013. Texas tea crude exports experienced a pricing uptick while the US lowered its dependence on foreign crude oil and cut imports in half.
Then again, trade-based economies are susceptible to exogenous disruptions and some element of risk.
On one hand, NAFTA’s impact on global trade for the Houston metro has been strongly beneficial as exports from the US to Mexico and Canada have outpaced imports from both countries by $76 billion last year alone. However, on the other hand, recent concerns around tariffs sparking a trade discord and the possibility of NAFTA renegotiations have the potential to cause a ripple effect to the $18.8 billion in goods moving between Houston and China annually, potentially reversing the headway made toward reducing the US trade deficit with China. Regardless of how future events play out, the Port will continue to be Houston’s top spot, the CBRE report surmises.
Demand within transportation sectors is expected to grow 30% by 2040. Since 2000, light- and heavy-duty transportation absorbed the lion’s share of energy demand and will remain the case as e-commerce sustains its growth trajectory. However, light-duty transportation demand associated with personal vehicles is expected to peak around 2020 and begin a slow decline as higher fuel efficiency and the number of electric vehicles on the road increases. Heavy commercial transportation is expected to swell as rising personal (and increasingly middle class) incomes fuel future trade for goods and services around the world. Commercial will get heavier, consumer lighter in future vehicle usage, says Robert Kramp, director of research and analysis Texas-Oklahoma-Arkansas region of CBRE.
A recent example of a well-located industrial property is in the form of a 30,000-square-foot building occupied by GE Oil & Gas in northwest Houston. It sold to GBP Properties, a real estate investment firm based in Monterrey, Mexico. The property at 11150 Equity Dr. is located in Westway Park just off of Beltway 8 north of Clay Road.
GE Oil & Gas has occupied the space for five years. CBRE’s Lynch and Mark Redlingshafer represented the Houston-based seller, Investment & Development Ventures LLC.
“This investment property generated a significant amount of interest from local, regional and national private buyers due to its irreplaceable location with easy access to Beltway 8 and a tenant with strong credit,” said Lynch.
According to CBRE research, there is a strong demand for industrial space in the northwest and southeast Houston submarkets, as more than half of the absorption for the first quarter of 2018 came from those two submarkets. In addition, vacancy rates in the Houston industrial market are the lowest in more than a year at 5.2%.
“There is an abundance of capital available for investors seeking to acquire well-located assets with solid tenants, and we expect the strong appetite for Houston industrial product to continue,” said Redlingshafer.