Nazir Khalfe, RIBA, AIA, Speaks on the Houston Industrial Market

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“You’re hearing a lot of people putting the brakes on Houston,” said Justin Bennett, Texas regional partner for Phelan-Bennett Development. “In the case of our particular project, we’re full steam ahead.”

Their project design calls for 36-foot clear heights, 189 trailer stalls and parking for 335 vehicles, which would accommodate a workforce large enough to handle the distribution of consumer goods. The location west of Houston provides proximity to a growing number of households that are increasingly shopping for goods online. The coronavirus pandemic has accelerated a trend that already accounted for 11.8 percent of retail sales in the first quarter, according to the Census Bureau.

“The design of these buildings is migrating to a greater amount of flexibility for parking versus a site that is solely limited to building area, truck maneuvering area and a small amount of vehicle parking,” Bennett said.

The project is the latest to break ground in a region with a number of large distribution centers, including Rooms To Go, Costco and Amazon. Construction is underway on a 2.1 million-square-foot distribution center for Ross Stores on Woods Road in Brookshire.
The building begins as developers delivered 9.8 million square feet of industrial buildings in the Houston market in the first quarter, pushing the vacancy rate to 7.9 percent, according to Colliers International. That’s up from 6.1 percent a year ago.

About half of the 17.8 million square feet of industrial space under construction area wide is preleased, according to Colliers International.

Despite the downturn in energy demand and an oversupply area-wide, Phelan-Bennett sees west Houston as poised to capture industrial demand in a post-COVID environment. Retooled supply chians and the shift from brick-and-mortar shopping to e-commerce platforms are expected to increase demand for industrial space, according to the developer.

“We want to meet that trajectory. We feel that our timing will be excellent,” Bennett said.

North of Interstate 10, National Property Holdings is marketing two proposed buildings totaling more than 1 million square feet for lease at its Katy Prairie Business Park.

Nearby, in Brookshire, Stream Realty Partners is on target to deliver another spec development with three buildings totaling more than 1 million square feet in April 2021 in the first phase of its Empire West project. Site work is under way, and Stream has secured a construction loan for the initial buildings.

Nazir Khalfe, a principal at Powers Brown Architecture who worked on the Brookshire project and many others across the Houston region, said the new buildings are designed to accommodate goods that can be stacked higher. The standard for buildings over 500,000 square feet has risen from 32-feet high to 36-feet, and now some will rise to 40-feet.

“Due to e-commerce, it’s more of a volume game, Khalfe said. “The clear heights of these buildings are getting taller and taller.”

Market dynamics may not be great now, but real estate investment trusts, for instance, are looking 12 to 18 months out, after which the COVID-19 pandemic should hopefully die down and oil prices will improve, Khalfe said.

WPT Industrial REIT has a portfolio of 102 industrial properties totaling 31.2 million square feet. Phelan-Bennett Development has developed 1.1 million square-feet of new Class A developments over six projects.