Contact Us

Want To Invest In Industrial Assets In Houston? One Answer Is To Build Near The Grand Parkway

Only five large industrial sites remain near the Houston Ship Channel, CBRE Senior Vice President Tom Lynch said. 

The expansion of the petrochemical plants, oil refineries and the shipping container business caused the demand and price for the industrial product to soar. Land costs have nearly tripled in the southeast market over the last eight years, he said. 

Soon investors will need to find a new market to build in.

Lee & Associates partner Reed Vestal, JLL Global Energy Practice Leader Bruce Rutherford, Vigavi Development Associate Christen Hatfield, Austin Industrial Vice President Russell Carter, Economic Alliance Houston Port Region CEO Chad Burke and CBRE Senior Vice President Tom Lynch discuss the impact of oil and gas on commercial real estate in Houston.

Petrochemical Companies Stabilize Industrial Market

Unlike the office industry, the industrial sector was able to stabilize under the oil downturn due to the expansion of the petrochemical industry in Houston. It had a transformative effect, Austin Industries Vice President Russell Carter said. 

Fracking and other energy-related technological advances led to the decoupling of natural gas and crude oil prices, which spurred demand and expansion within the petrochemical industry and its related suppliers. 

"The long-term supply of natural gas in North American because of shale gas and fracking has changed the global dynamics," he said. "Houston sits at the epicenter of what the impact is going to be." 

And now, offshore drilling is making a recovery. 

Within the next two months, the major oil and energy companies will begin finalizing their capital budgets and determining new platforms to launch, JLL Global Energy Practice Leader Bruce Rutherford said. 

The first place to invest in offshore drilling is in the Gulf of Mexico, he said. Oil extracted there is filtered through the undersea pipeline network, which is connected to the world’s largest petrochemical complex, which is then connected to the largest market for refined products. The second-largest market is the North Sea, he said.

JLL research indicates the offshore business will be in full bloom by the second half of 2019 and predicts a boost in real estate demand in late 2019.  

North Houston District Chairwoman and Transwestern Executive Vice President Michelle Wogan, Meridian Energy Group Vice President John Cloward, Texas Children's Hospital Business Operations Manager Rodney David, Newmark Knight Frank Executive Managing Director Rob Stillwell, Emser Tile Vice President Mark Comstock host a tenant roundtable to discuss what major tenants look for regarding industrial space in Houston.

Originally, Houston-based industrial developer Vigavi wanted to have a significant presence in the southeast submarket to be close to its oil and gas clients, Vigavi Development Associate Christen Hatfield said. But as the price of oil began to slip, the growth of the petrochemical companies filled the manufacturing space. For example, all of the tenants at the Fairmont Industrial Center in La Porte service chemical plants. 

Vigavi has four industrial parks in southeast Houston near the Houston Ship Channel. The company is paying over $7/SF for a build-to-suit development currently under contract, she said. That is a big leap from between $2 and $2.50 in the same area about eight years ago, according to Lynch.  

“When we thought the price of oil was going to affect our business, it actually did the opposite and brought new players into the market,” Hatfield said.  

Industrial Demand Picking Up Along Grand Parkway 

As space runs out in southeast Houston, developers are looking elsewhere. Industrial product is thriving along the Grand Parkway, which is expected to have a similar effect as the Beltway 8 in terms of connectivity and access for industrial end users. The toll road will connect the suburbs from Conroe, Freeport to the south, Baytown to the east and west to Katy.      

Hatfield, whose company operates two industrial parks in Katy, one of the fastest-growing submarkets in Houston, said Houston suburbs are ideal for industrial because of the reduced tax rate, lower cost of living and cheaper land cost. 

"Land is too expensive if you are anywhere close to the Beltway 8," Lynch said.

Industrial space along the Grand Parkway is picking up interest from institutional money, Lee & Associates partner Reed Vestal said. 

"[At first], they were kind of scared of investing in areas they seemed to think of as prairies," Vestal, who specializes in land and industrial assets, said. "Now, I can tell you over the last six to nine months, we have seen an enormous amount of activity along the Grand Parkway.”