How Oil, Panama And E-Commerce Are Leaving Their Fingerprints On Houston Industrial
The industrial market will likely have some increased vacancy and occasional consolidation, but overall won’t be hurting because of lower oil prices. Clay Development owner Robert Clay (pictured with CMI Brokerage’s Vic Vacek at Bisnow’s industrial event yesterday) says the Schlumbergers of the world are buying the Camerons of the world for their manufacturing/blue-collar capabilities and won’t be shutting down those facilities in mergers. (And although our panelists have heard rumblings about consolidations, they haven’t seen much actually happen.) He reminded the audience that we had $35 oil in 2009, and no one talked about it then. In ’09 and ’10 he didn’t lose a single tenant and raised rents 10% on 13 renewals he signed. This downturn may be a little longer than that one, but if you got through ’09 and ’10, he doesn’t see any reason you couldn’t get through ’16 and ’17. Energy Architecture senior project manager Alan Creech says “change always means work”; whether it’s expansions or consolidations, the AEC world is designing space.
Vigavi Realty managing principal Luis Rene Garza Villareal (left, with JLL’s Richard Quarles) is seeing the same; his company is under construction on a 30k SF building on 14 acres that’ll be a consolidation. Capital is available for development, he says, although banks mostly want to lend to local guys who’ve proven they know the market, and they may ask for more equity.
Don’t expect relief on construction or land costs. Arch-Con SVP Jason Cooper says any slowdown in office construction is being offset by increased retail and infrastructure work, and multifamily is still going strong. He doesn’t see construction costs dropping any time in the next 90 days. Q4 could maybe see prices dip 2%. As for land, sellers never lower their pricing, Robert says, they just hold until the market improves. It used to drive him crazy but now he’s just accepted that land will only ever get more expensive.
The impact of the Panama Canal expansion is still up in the air. The Port of Houston is projecting 9% growth in exports, which Robert says is nice but not the bonanza some have expected. Jason (whom we found with Walker Parking Consultants’ Beccy Whyte) says the infrastructure around the Port, rail and road, needs to be improved to really get a boost. For example, we could feed products to the major distribution hubs in Dallas, but first we’d need better infrastructure to get things from the Port up there. (Robert says the rail system is single-handedly blocking deals in the Southeast submarket.)
The next 18 months will be hugely driven by e-commerce, according to Duke Realty SVP David Hudson. He says Amazon has already done a couple of deals in Houston, and we’ll see more companies start to put down warehouses to up their delivery speed. They’ll have trouble finding space in the parts of town they need to be to hit the one-hour delivery Amazon is targeting. Luckily, they won’t be looking for massive facilities. Jason says most companies will want multiple smaller warehouses (maybe 50k SF) scattered throughout our massive metro area rather than one giant center.