CRE Professionals' Paradise: California vs. Texas Industrial Space Showdown
This article is the second part of a three-part series comparing commercial real estate (CRE) markets in California and Texas. While the first part focused on retail space, this installment delves into the industrial sector, examining the vibrant demand and unique opportunities each state offers. Using insights from the latest CoStar data, we’ll explore the dynamics of industrial space in these two powerhouses. This is a brief overview, highlighting key points for your quick consumption because your time is valuable, and these insights are both informative and entertaining to know.
Industrial Space Inventory and Vacancy Rates
California
Inventory: California boasts a substantial inventory of 3.3 billion square feet across 105,580 buildings.
Vacancy Rates: The state has a low vacancy rate of 5.0%, indicating strong demand.
Rents: All service type rent averages $15.95 per square foot.
Texas
Inventory: Texas, while having a slightly smaller inventory of 2.65 billion square feet across 70,410 buildings, is growing rapidly.
Vacancy Rates: Texas has a higher vacancy rate of 7.7%, reflecting its faster pace of new construction and absorption.
Rents: The average rent for all service types is $9.43 per square foot.
Growth and Development Trends
California
Stability: California’s industrial market benefits from its established logistics and distribution networks, particularly around key ports like Los Angeles and Long Beach.
High Demand Areas: Major cities such as Los Angeles, San Francisco, and San Diego see continuous demand driven by e-commerce and tech industries.
Construction Activity: With 48 million square feet under construction, California continues to expand its industrial capacity, albeit at a slower pace compared to Texas.
Texas
Rapid Expansion: Texas is experiencing a construction boom with 70.3 million square feet under construction. Cities like Dallas, Houston, and Austin are hotspots for new developments.
Business-Friendly Environment: Lower costs and favorable regulatory conditions attract businesses, leading to high absorption rates and rapid inventory growth.
Strategic Location: Texas’s central location in the U.S. makes it a logistics hub, particularly for distribution centers serving the entire country.
Demand Drivers
California
E-Commerce: The rise of e-commerce continues to drive demand for warehouse and distribution space, especially in proximity to major ports and urban centers. Companies like Amazon and Walmart have massive distribution centers in the state.
Technology and Innovation: The tech industry’s need for R&D and manufacturing space adds to the demand in cities like San Francisco and Silicon Valley. Major tech employers like Apple, Google, and Facebook are significant contributors.
Import/Export: California’s ports handle a significant volume of the country’s imports and exports, necessitating extensive warehousing and logistics infrastructure. The Port of Los Angeles and the Port of Long Beach are critical nodes in global trade.
Texas
Population Growth: Texas’s rapidly growing population fuels demand for consumer goods, driving the need for more warehouse and distribution space. The state’s major employers like AT&T, Dell, and ExxonMobil are significant contributors to this growth.
Manufacturing: Texas’s strong manufacturing sector, particularly in oil, gas, and technology, requires substantial industrial space. Companies like Tesla, which recently opened a Gigafactory in Austin, are prime examples.
Logistics: The state’s central location and extensive transportation network make it ideal for distribution hubs, serving both national and international markets. FedEx and UPS have major distribution centers in Texas, leveraging its strategic advantages.
Conclusion: Upsides for Each State
Both California and Texas present vibrant industrial real estate markets, each with unique strengths and significant upsides. California offers stability and high demand driven by e-commerce and technology, making it a prime location for established industries seeking reliable logistics and innovative spaces. The state's well-developed infrastructure and major port facilities further enhance its appeal.
Texas, on the other hand, provides rapid growth opportunities fueled by a business-friendly environment, lower costs, and strategic central location. The state's booming population and expanding manufacturing sector make it an attractive destination for new industrial developments and logistics hubs.
Stay tuned for the final part of the series, where we will compare the office space markets in California and Texas.
References
CoStar Group