Houston Real Estate Market Takes a Healthy Pause as Industrial, Retail Sectors Shine – Say Experts at BoyarMiller Annual Real Estate Forum
HOUSTON (Dec. 15, 2015) – As Houston’s commercial real estate market takes a healthy pause from its previous rapid rate, there are several bright spots particularly in the industrial and retail sectors, presenters at the BoyarMiller Real Estate Forum told an audience of about 200 business influencers last week.
While attendees anticipated hearing how the impact of low oil prices has negatively affected the local real estate market, they were relieved to hear some good news from Trey Odom, founder and CEO of AVERA Companies; Jonathan Brinsden, CEO of Midway; and Jimmy Hinton, managing director of research at HFF.
“Commercial real estate is such a dynamic market in Houston and a reflection of our local economy to the rest of the nation,” said Chris Hanslik, chairman of BoyarMiller. “Our panelists shared their insights and told us that it is okay to take a deep breath and let the rest of the country catch up. We are at a good place and 2016 will be just fine for Houston real estate.”
In fact, the industrial real estate sector is extremely healthy, said Odom. “There are two main drivers of industrial activity—the petrochemical industry and the expansion of the Panama Canal,” he said.
There are more than $100 billion in expansion projects under development at chemical plants along the Gulf Coast that have been identified or are under way. Additionally, Odom said the expansion of the Panama Canal allows for larger ships to service the Port of Houston, and that has fueled construction activity.
“As the Port of Houston expands to increase its container ship capacity by 37.5 percent, it leads to stronger demand for industrial space,” said Odom.
Additionally, Odom cited the largest industrial construction project in the nation as evidence of Houston’s strong industrial real estate market.
“A manufacturing plant is under construction in northwest Houston for Daikin Industries costing about $420 million with four million sq. ft. of space under one roof,” said Odom. “We expect 2016 will lead to more announcements of big-box buildings in excess of 500 sq. ft.”
Odom predicted that leasing activity and rental rates will remain constant in 2016 and the year-end momentum will continue. “With new development pausing, we may even see industrial rental rates go up next year. Overall, it is a pretty bullish environment.”
Retail follows rooftops
Houston also shines in the retail center market where occupancy is at 94.6 percent with the highest rental rates since 2008, said Brinsden of Midway.
“The suburban areas account for much of the retail growth,” said Brinsden. “There are some urban infill projects, but basically retail follows rooftops. So we are seeing significant retail construction activity in Katy and North Houston due to the Grand Parkway expansion.”
Brinsden said there is a total of 11.5 million sq. ft. of retail space that was either completed or proposed this year with discount and warehouse stores the most active.
In the office market, Brinsden said there is 9.6 million sq. ft. of space that will be available through 2017. He made an interesting observation about choosing office space.
“There is a shift from office space being considered a cost to now it is being considered an investment in hiring and retaining the best people,” said Brinsden. “Amenities and connectivity are the decision drivers of office space now.”
Additionally, Brinsden said there is more flexibility in lease terms because businesses are having difficulty committing for a longer period of time.
“There is also the flight to quality,” said Brinsden. “In a great market when rates are increasing, some people are priced out of the market. But now, as the market softens and renewals come up, it is an opportunity to take advantage of something they perhaps could not afford before.”
Investing in Houston
Jimmy Hinton of HFF told the audience that today’s real estate environment in Houston is a good scenario.
“Capital appreciation of our local real estate assets has been on par with San Francisco over the past several years and we need to cool off,” said Hinton. “We are in a reasonably healthy environment.”
Hinton said there are more manufacturing jobs in Houston than anywhere in the country. “These jobs are predominantly in the petrochemical industry and in the manufacturing of steel drill pipe. Houston is not losing jobs in petrochemical, job growth is merely shifting from the west side of the city where they are engineering based to the east side where the jobs are more blue collar.”
Hinton said the pause in the market removes risk-taking and will result in a healthy approach to building within the city going forward.
“We have not scared off investors in Houston either,” said Hinton. “Foreign capital is flowing into Houston from Canada and new investors from Israel and South Korea are engaging Houston with fervor. We expect that will continue.”
To view the presentations from the BoyarMiller Real Estate Forum visit www.boyarmiller.com.
BoyarMiller is a mid-size Houston-based law firm that advances client business goals by bringing new possibilities into focus with confidence and clarity to achieve extraordinary outcomes. Since 1990, we have been providing practical and smart business solutions. Our firm is comprised of two practice groups—business law and litigation—and we serve multinational companies, middle-market businesses and entrepreneurs in need of collaborative and strategic representation. See boyarmiller.com for more information.