East Side Explodes as Port Demand Grows

HOUSTON-While much of the real estate news lately has been about energy companies and their demand for office space and land, other stories coming out of the city's eastern tier are poised to match the vibrancy of the Energy Corridor.

Much has been written about the Port of Houston Authority's Bayport and Barbours Cut Terminal developments as well as the four-million-sf distribution center in Cedar Creek for Bentonville, AR-based Wal-Mart Stores Inc. Other newsmaking deals of late include a 900,000-sf spec project by locally based Clay Development & Construction and the four-million-sf Port Commerce Crossing Center on 295 acres, a joint venture development by National Property Holdings of Pearland and ML Realty Partners of Itasca, IL.

Resting in the shadow of these giant newsmakers is more development. Experts knowledgeable about the East-Southeast Far submarket tell GlobeSt.com that the seemingly overnight development success story has been years in the making.

While development has been occurring slowly in the area, it wasn't until Wal-Mart and Bayport happened that the community's collective consciousness realized more was needed. "Everyone realized that there wasn't a large capacity of distribution warehouses out in that market," says Kelly Parker, executive vice president in Cushman & Wakefield of Texas Inc.'s Houston office. "It's a tight market right now, but before some of the current buildings came online, we were running at around a 3% vacancy."

The Houston port area has experienced growth from companies coming from Louisiana in the wake of last year's hurricanes. But Billy Gold, first vice president in Houston for CB Richard Ellis, points out events at ports in Los Angeles and South Bay, CA are also impacting the local scene. He says companies fed up with union problems, infrastructure challenges and lack of space for future development are turning their sights on the Bayou City.

"A lot of these companies are looking at multiple ports to diversify," Gold says. "They don't want to be caught in the situation New Orleans had last year. They don't want to deal with longshoremen's strikes. They want to be where the population is. All roads in that case point to Houston."

Those requiring proximity to ports tend to be more land and space hungry than in other areas of real estate too. "The average distribution space required on the east side is between 250,000 sf to 500,000 sf," Gold says. "Elsewhere in the Houston market, we're looking at about 40,000 sf."

Developers wanting to supply space to meet the demand may now have some problems just waltzing in, plunking down money and taking acreage. "A lot of developers want to be in this market, but it's becoming difficult to find good land product because of zoning," Parker says. "Deer Park and LaPorte have tightened up the zoning laws, meaning we have a few people with some pretty good land positions that will be the bulk of our development out there for the next five to seven years."

Gold also predicts development is likely to slow down within 12 to 18 months. "Most of the key tracts are already under control of major development entities," he says. "We'll see controlled growth and development of new product in the area."

But, Parker says there are some people who do believe there could be too much supply to meet the demand. "There are a number of people who think that there is going to be a bloodbath over there, but I don't think so," he says. "We are seeing more activity there and no one knows how deep the market is or how much it'll be absorbed. But, I think absorption will be strong."