'Fingers Crossed' Middle Eastern Conflict Doesn't Obstruct Houston's Industrial Momentum

Houston’s industrial market has a good thing going. Hopes are high that the Iran conflict doesn’t ruin it.

The construction industry was gaining stability after years of pandemic-initiated headwinds. But now pricing impacts are reverberating from the Middle Eastern conflict and a surge of hyperscale data center development, Harvey Builders partner David Rasch said at Bisnow’s Houston Industrial Summit at the Hilton Houston Post Oak by the Galleria on Thursday. 

“There's a lot of positive momentum across the country and in Houston,” Rasch said. “To dampen that momentum would really be a shame when we're finally getting our legs back under us after some challenges over the last five or six years.”

Since oil prices have pushed up fuel costs, contractors have seen the cost of a single equipment delivery trip increase from $150 to $500, he said. 

Commercial construction materials costs had already surged 40.5% from February 2020 to January 2025, and prices were 3.1% higher in February compared to the previous year, according to a report from industry trade group Associated Builders and Contractors. 

Steel prices had been more stable early this year, but that is being impacted by the explosion in data center development, Rasch said.

“The data centers are taking a lot of the steel, which is in turn causing steel prices for this type of product to go up a little bit,” he said. 

But Houston’s industrial performance provides reason to believe that everything will work out, panelists said. When deliveries broke annual records — despite price surges in the construction industry — and the market was threatened with oversupply, Houston industrial demand kept pace. 

“I'm crossing my fingers … that we get back to business as usual, because there's a lot of positive momentum across the country and in Houston,” Rasch said. 

The Iran conflict is a challenge, but the industry has faced worse challenges in the past decade or so, he said, adding that he hopes the Strait of Hormuz reopens soon.

In the meantime, developers have figured out how to make things work despite volatility, Alliance Industrial Co. Managing Director Chad Parrish said.

“Some people are just accepting that volatility is the new normal,” Parrish said. “If you believe in the market and you believe in what you're doing, you can't be distracted by all this volatility.”

Increased costs can be made up for with higher rental rates, he said. The most important factor is demand, of which Houston continues to see plenty.

“If there’s no demand, then I can’t help you,” Parrish said.

And the numbers show that manufacturing demand has surged. In May, 34% of tenants in the market were looking for manufacturing space, an increase from 10% a year prior, according to JLL. 

“[There is a] tremendous amount of manufacturing demand,” National Property Holdings CEO Michael Plank said. “A lot of that is data center-related, a lot of pure manufacturing need, a lot of onshoring, nearshoring.”

These tenants find Houston’s port access and labor markets appealing, he said.

Big-box tenants like Amazon are also returning to the market, creating demand for more industrial buildings in the 1M SF range again.

When tariffs negatively impacted other ports, Port Houston saw an increase in traffic tied to nearshoring, Prologis Market Officer Hans Brindley said, adding it is mutually beneficial to the port and to manufacturers. 

Global disruptions can actually benefit Houston because it is cheaper to develop in than other markets, Hanover Co. development partner James Melody said. 

“Texas remains a value option for a lot of firms that have a national and global scope,” Melody said.

The cost comparison, plus Houston making national headlines for its dynamics like leading the country in industrial absorption, continues to attract developers. There is so much going for Houston, the market is where it needs to be, Melody said.

“Where we sit in the world, where we sit in the country, irrespective of time, place, events, we're probably going to be better off than most,” he said. “So we're going to operate with that assumption.”