Houston Industrial Real Estate Market – View from the StreetPosted
Everyone is asking “What’s going on with Houston’s industrial real estate market?!” I don’t think anyone really knows, but I think there are going to be some opportunities out there.
Good News First
Houston is more diversified than the bad old days of the ‘80s when things went “south”, in spades. My recollection is, however, that things were very different back then. We have lots to be happy about here:
Gas prices are low which means petrochemical products (one of our primary industries here) can be manufactured more competitively with inexpensive feed stocks.
With the Panama Canal expansion, our Port of Houston should enjoy much enhanced activity in the future.
Our Medical Center is the largest in the world and is only getting larger with major announced expansions underway.
We have great weather (except for our summers, which is an ancient memory right now!) relatively low cost of living and cost of housing, all of which will continue to attract population to Houston.
The Big Question
What will $50/barrel (bl) of oil (1/2 of the high 6 short months ago) do to Houston’s Industrial Real Estate Market?
What I hear is: the smart people think oil will increase in price and level out about $75-80/bl in the near term. At that level we should be fine. It is alarming to read about the huge layoffs in the oil service segment of our market, but it has been said that this is an opportunity for these companies to “right-size” their labor force, back to economic levels.
Other Industrial Real Estate News
I have written two Blogs earlier (May and September, 2014) about the incredible amount of new construction of distribution warehouse real estate taking place in Houston. It is a little scary for me to see many hundreds of thousands of square feet of multi-tenant space being built totally speculatively (no tenant commitments) today. I am sure the developers are a lot smarter than I am, and I don’t see rental rates deteriorating at this time either. There is also still a huge interest by institutional investors in the Houston distribution warehouse product with still not much out there for sale. Cap rates (and per/square/foot asking prices for industrial buildings) have been at tough levels for pragmatic institutional real estate buyers to justify. This could change! There could be buying opportunities approaching which we have not seen in several years in this segment of the market.
I’m not trying to predict the future. In my opinion, only fools, do that … because ANYTHING can happen, and when it does, the game changes instantly. Of course, you can educate yourself with historical data and attempt to draw some correlations. I don’t envy the development community (and especially office building developers) trying to make informed decisions today, knowing that their property acquisition and construction periods go out 3-5 years before their property hits the market.
For me, I just continue to do what I do, to the best of my ability, and not listen to the pundits. In good times and in bad times, Clients have the need to acquire, or the need to dispose and the only question is: at what price, and how long will it take. I’ve been here before and probably will be again. Now, however, with the New Year upon us, it is a time to be creative with how to spend my time in 2015. We’ll see a year from now whether I guessed right.
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.