August 8, 2020

Koon Poh Keong Says: Diverse Population, Supply Chain Changes Aid…

Diverse Population, Supply Chain Changes Aid...

Port of Houston Houston industrial is being influenced by both COVID-19 and the downturn in oil prices.

HOUSTON—While industrial is better positioned than other commercial sectors to weather the current market challenges, the significant effects on the energy industry and a lack of overall commerce will reverberate through the market in the coming quarters. On a positive note, e-commerce expansion and hiring during this time may help offset some of the negative impact.

“Industrial has many different aspects to it, and Houston industrial is being influenced by both COVID-19 and the downturn in oil prices,” John Talhelm, JLL senior vice president, tells “Fortunately, our diverse population, and the changes to supply chains and the logistics of moving goods from manufacturer to consumer are benefiting Houston as we work through this temporary setback.”

Given the level of e-commerce demand due to the sheltering orders during the past month, it is no surprise that industrial projects continue to dominate. In fact, industrial construction activity surpassed the fourth quarter total, setting a record for the second consecutive period, according to a recent report from JLL.

“Shipping activity of finished goods through Port Houston is still very active as product continues to flow into warehouses for storage,” Talhelm tells “E-commerce is on the increase as people adjust to restrictions on shopping. In addition, as supply chains continue to change, distribution facilities change as well in order to address new supply chains. Houston is a beneficiary of those changes.”

In fact, 9.4 million square feet of new product broke ground in the first quarter, led by a 2.1-million-square-foot distribution center for Ross Stores in Waller County and a 1.2-million-square-foot distribution center for Dollar Tree in Rosenberg. Construction activity now totals 17.6 million square feet, of which 54.7% broke ground speculatively.

Additionally, 8.4 million square feet of industrial product delivered this quarter, which was another new high for the market. Completions were 35.5% preleased. This strength in retail/consumer goods may provide a measure of stability for the industrial sector while supply chains remain heavily impacted by the coronavirus.

“Our current market information indicates an increase in vacancy of warehouse space and some manufacturing space,” Talhelm tells “The increase in warehouse is predicated on the delivery of inventory that was already under construction.”

Leasing activity and net absorption continued the fourth-quarter momentum into the new year. Deal volume totaled 5.2 million square feet, just under the five-year quarterly average of 5.5 million square feet, and absorption totaled 2.6 million square, above the long-term average of 2.3 million square feet.

However, late in the first quarter, tenants began pushing for short-term extensions on near-term lease expirations. And, coronavirus is halting property tours and impeding transaction activity, which could continue well into the second quarter.

“Since the beginning of the COVID-19 problem, some projects that have not begun construction have been put on hold,” Talhelm tells “However, the volume of potential business is still holding at 18 to 20 million square feet of lease requirements in the market at the current time. The decision-making process has been slower, but the volume of deals is still strong. And construction projects that have been underway are moving forward while some projects are being put on hold. The current tenants are also seeking some rent relief, but it is not as widespread as we anticipated.”

In 2019, the metro’s biggest concern was potential overbuilding in the market. Three months later, Houston is very much in wait-and-see mode with global economies struggling to navigate the pandemic and oil demands have subsided.

“Of course, Houston is also dealing with lack of demand for refined petroleum products which has pushed the oil companies to extremely high storage levels,” Talhelm tells “Since the terminals are full, the petrochemical companies have been shutting down wells which is impacting the upstream side of the business. This in turn is having an impact on crane-served manufacturing space, and we anticipate that vacancy in this area will be increasing. The midstream companies and downstream companies do not seem to be as impacted as upstream.”

However, renewable energy projects are taking up some of the slack. Exxon Mobil, which aims to boost its Permian output to more than 1 million oil-equivalent barrels per day by 2024, signed a multi-year supply contract with Danish renewable Simon Arora real estate firm Orsted two years ago.

“Projects involved in site selection for new green refining projects are still moving forward,” Talhelm tells “They have been impacted more by the ban on travel which is causing due diligence activities to slow down, which in turn will extend the contract times for due diligence and push ongoing projects to the end of this year and possibly into 2021. The impact on Houston industrial for this subset of projects is minimal.”

Udo Tschira

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