Commercial Industrial Real Estate Broker’s View of the Houston MarketPosted
Commercial industrial real estate brokers in Houston have a difficult task in determining exactly where the “market” is today and where it is going. Trammell Crow told me many years ago: “…the industrial real estate market will always have a cycle of supply and demand, the challenge is to know where you are on the cycle…”
Mr. Crow was a very wise man and this statement is certainly true. Commercial industrial real estate brokers have a decision to make whether to spend their productive time calling on tenants and buyers (in a strong “supply” market) or landlords and sellers (in a strong “demand” market). In a “supply” market, there is lots of space available so construction of new projects is down, rents are more competitive and there are more space options to consider. At this time, the real estate broker would want to represent the prospective occupants of buildings. In a “demand” market, there is limited space available, so a smart real estate broker would want to take listings of properties for sale or lease. Today, as always, it’s difficult to know where we are on the cycle and where smart commercial industrial real estate brokers should spend time developing business.
The facts are: we are in Houston, where our dominant industries:
- Energy, ship channel industries/ sea port and medical centers which are headquartered here, are healthy
- Jobs are being formed at a high rate
- The stock market is at an all time high
This would indicate that this is a good time for developers to build their projects. That is exactly what is happening. One very interesting fact which has just happened is: in the livestock, wine and school art auctions taking place in the Houston Livestock Show & Rodeo have all set huge new records which would indicate personal incomes are up considerably. In spite of the confusion and lack of direction by the Washington politicians, industry here, which has been on the sidelines for years now (trying to figure out the “rules of the game” as dictated by the government), finally has decided to proceed to satisfy their pent up demand for space. They can’t wait 4 more years. New construction of industrial buildings, office buildings and industrial parks is out-pacing recent past history by a large margin.
Many of these properties being built are “speculative” projects (no commercial tenants or commercial real estate buyers in place prior to breaking ground) and are “betting on the come” that there will be commercial tenants and buyers to occupy the project, once completed. Mortgage Lenders are especially interested in the optimism of the developers constructing buildings and business parks without tenants and buyers in place and are requiring unusually large financial participation as well as “personal liability” on the part of the developer getting the loan.
However, interest rates are at an all time low and that could also make this time in the cycle attractive to invest. There is a huge supply of money in the hands of Institutional Investors looking for attractive projects to acquire in Houston so the developers now have an ability to sell a partially leased or sold property in the middle of their marketing program, if they desire. The industrial properties in highest demand would be: high quality, multi-tenant commercial properties that are well thought-out and designed, general purpose and well located (remember, no zoning in Houston) being on or near major transportation thoroughfares.
In summary, commercial/industrial real estate brokers should look forward to a near term excellent market for their efforts. However, the “conservative” conventional wisdom tells me: When everything looks really good, you better begin to be careful, because markets change with the cycle and taking risks can come back to haunt you if your predictions are not completely accurate.