Recent ESG changes – and changes in Nature in general – have been challenging the Industrial sector in certain states. But, always known for its toughness and tenacity, Texas is rising above the rest and showing multiple markets with promising growth.  

Despite these ESG regulations limiting performance in multiple commercial real estate sectors, the Longhorn state’s Industrial sector is showing growth in multiple markets. Texas has been fighting – successfully – through the barbed wire, and with other separate ESG changes in its favor, the Texas Industrial Sector may be set up for continued growth opportunities in the coming months.  

In April, Prologis (PLD), the world’s largest industrial REIT, reported slowing warehouse demand nationally. And while new Green Street data is always oncoming, Texas specifically seems less impacted from these harsh weathers. Markets such as Dallas/Fort Worth (DFW), as well as Houston, should see rent levels mostly hold this year while strong demand drivers should allow for future growth potential.  

New Green Street data in our Dallas / Fort Worth & Houston Industrial Illumination report outlines how DFW is showing relatively stronger growth versus other major industrial markets in 1Q24. Vacancy rates have continued to rise along with elevated supply. On an even more promising note, Houston has seen radical increases in import volume over the past several years. 

The active under construction pipeline has dropped significantly due to a lack of resources (potentially due to these former ESG limitations). And yet still, Houston and DFW continue to show signs of steady growth in the Industrial Sector despite the odds. The toughness of the Longhorn state is truly shining strong in Commercial real estate. And that isn’t the only thing the gritty state of Texas has had to fight through.  

As we’ve noted in our recent ESG: Fund Flow Bifurcation report, there has been a notable backlash to recent ESG policy in the United States due to feelings of overregulation and reporting. This has caused a serious fund flow limitation for sustainably themed funds. And despite economic reactions to the recent regulatory policies, the SEC has continued to pass rulings that the CRE space – and economy as a whole - are less than pleased with.  

In fact, a recent ruling from the SEC has been met with several lawsuits from Republican states, and even some Democrat states, in a mass pushback against this overregulation and reporting. We cover more of this ruling in a report, Green Street’s ESG: News Roundup. Texas is only one of more than a dozen states joined in a coalition against the SEC in these lawsuits.  

The new SEC ruling from March – which we dive into in more depth in our ESG: SEC Climate Disclosure Rule Highlights report – mandates that companies disclose climate-regulated risks which have a material impact on their businesses. It introduces such ruling in three scopes:  

1. Reporting on emissions from direct company activities  
2. Reporting on emissions from energy usage in storage or production  
3. Reporting on emissions from complexity of supply chain  

Scope #3 is considered the real deal breaker here for most companies as it is highly expensive just to track these emissions well. Let alone reoptimize the entire supply chain of a product/brand/service in alignment with ESG policies as opposed to profit or functionality.  

We dive into the lawsuits the SEC is currently facing from all directions in our ESG: News Roundup report. Opponents to this ruling were also assured that Scope #3 would be watered down in the final redrafting process before it was passed – but they were sorely mistaken. This has led to the flurry of lawsuits brought against the SEC that Texas has joined in on.  

However, not all ESG tides are turning against the longhorn state. Recent limitations on the number of ships allowed through the Panama Canal will soon be raised given new research showing that recent drought conditions in the Canal were a result of El Niño instead of climate change issues. We also dive into this ESG update in our recent report on the Industrial ESG Panama Canal Prognosis. Given these transit limitations, many cargo ships have been rerouted to coastal ports as of late and away from the Gulf.  

This new rise in capacity could potentially benefit port markets such as Houston as they welcome old cargo shipments back.  

Now, whether you can blend these different stories and research insights into solid forecasting is up to you. If you’re looking to stay ahead of the curve in the Industrial sector – especially in the Sun Belt region – you should consider subscribing to Green Street’s industry-leading products for actionable intelligence.

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