So, What is the Houston Commercial Real Estate Market Really Doing?Posted
I often have folks ask me what Houston’s commercial real estate market is really doing. The answer lies in which commercial market in Houston you are talking about. There are really five real estate markets in the Greater Houston Area: office, industrial, retail, land and investments. What I can comment on is specific to Houston’s industrial real estate, land and the investments markets. You would have to look to other experts to discuss the rest.
The “pundits” out there have lots of opinions right now. Are there “clouds” on the horizon with oil prices being down? As you likely know, energy is the engine that drives the real estate market in Houston. That said, the medical center is a major contributor, NASA and their contractors (with whatever they will do in the future) is part of it, and certainly the Port of Houston is a contributor. And, not to be forgotten, we have a very low cost of living here in Houston which attracts residents regardless of the specific industry in which they work. This of course pushes the residential market activity.
Anyone who holds themselves out as a “commercial real estate expert” and claims they can predict the future of the real estate market in Houston, is, in my opinion, a fool! We can look at historical data and try to glean a message about what might happen, but accuracy is the question. As a result of that, I listen. I try to learn what others know that I don’t, but acting on it is another thing altogether.
So far, I have not had any of my deals fall apart because of an anticipated down-turn. I do not see any weakening of industrial rental rates on deals being done. I do not see free rent being offered as it was in the bad old days. And, my prospects for industrial real estate deals are still mostly coming from the industries down-stream from the well-head, from the petrochemical & refinery industries or from the growth in residential construction.
Distribution Warehouse Space
However, as you may have seen in two of my earlier blogs, there are lots of new institutional quality distribution warehouses being built and completed at this particular point in time and it will be interesting to see how that is absorbed. Good develop-able land sites are in very short supply and those still available in attractive areas are still there because they require expensive infrastructure work. Institutional buyers of properties have the toughest challenge because there is still a huge amount of money out there competing for very few available industrial projects fitting their specific acquisition criteria. Cap rates are still at an incredible low level and high acquisition costs per square foot (which is the way I measure a deal) are difficult to justify. That’s why there’s so much new construction of these distribution warehouse projects right now.
What I see right now in commercial real estate
There are seemingly many initial choices in my available property searches but once I burn through those which have been recently sold or leased and identify those still available to my prospects, there does not seem to be a surplus of ideal commercial property choices. I am still getting lots of activity on my industrial and land listings, some of these prospects are “tire kickers” but most seem to really want to get a deal done. Interestingly, once offers are made, Owners seem to be primarily concerned about leasing or selling “too cheap.” The mind-set being that this is a great market (and it is!) and expect the top sales price or lease rate. Many are not currently in a negotiating posture. I am not sure about the wisdom in that!
Anyway, it will surely be interesting to see how Houston’s industrial properties market plays out after the Christmas holidays are over and everyone gets back to work!
Stay tuned …..!
Michael Hill Properties offers more than 40 years of experience in brokering commercial industrial properties, such as distribution warehousing and manufacturing, for sale and lease in the Greater Houston Area as well as outside of Houston. For more information on Michael Hill Properties, visit mhprop.com or call (713) 960-6060.