HOUSTON – (Realty News Report) – E-commerce is transforming the retail industry and changing the industrial market as well. Meanwhile, Houston’s industrial developers are building larger warehouses than ever before. Huge cargo ships leave China loaded with consumer goods, bound for the Port of Houston. The Panama Canal expansion allows larger ships to pass. Many say Houston is stepping into the big leagues of distribution. To find out where Houston industrial real estate is headed, Realty News Report talked with one of the city’s top industrial experts — Walker Barnett, SIOR, Principal & Director of the Houston office of Colliers International. Walker focuses primarily on industrial real estate sale and lease transactions involving warehouses, manufacturing facilities and land. He leads Colliers’ 22 industrial real estate specialists and is a regular top 10 performer in Houston and has also achieved revenue performance in the top 10 percent of all Colliers offices worldwide. Walker holds the professional designation of Industrial Specialist, Society of Industrial and Office Realtors (SIOR) and served on the Houston Gulf/Coast SIOR Board, most recently as president in 2016.
Realty News Report: You keep your finger on the pulse of the market and you served as President of the Houston Society of Industrial and Office Realtors last year. How would you describe the sentiment of the commercial real estate community right now? Is there a positive attitude?
Walker Barnett: It’s generally positive. People including developers are focusing on population growth and it’s increasing. On the industrial side, we’re seeing more E-commerce and consumer products companies that are looking at larger distribution buildings in our market. On the east side, there are a number of large plastic resins logistics deals circulating. So between e-commerce, plastic resin packaging and distribution, and consumer goods distribution projects, the general feeling is the industrial market is fairly robust. Keep in mind, though, that at some point, the resin leasing side might slow down. As additional plastic plants come on line, we’ll get a truer picture of what the demand side of plastics side looks like.
Realty News Report: As we enter the fourth quarter, how would you describe the condition of Houston’s industrial real estate market? Strong? Weak? Normal?
Walker Barnett: Normal. There are a number of larger transactions that we anticipate closing before end of the year with absorption happening in first quarter. Houston has emerged as a core industrial market and investors and other capital sources are happy to put their money here when it makes sense. Industrial developers still are taking the risk to meet demand for spec buildings and preleased structures. The demand is expected to continue as our population grows through inbound migration and the natural birth rate. We feel future distribution patterns will favor being closer to end-users.
Realty News Report: Houston is seeing more large industrial projects so often these days. Can you explain why?
Walker Barnett: Historically, the large distribution centers have been Chicago, Dallas, Atlanta, and Los Angeles, but Houston’s position is changing thanks to our continued growth and the port’s ability to take more inbound containers. The Port of Houston has continued to grow in capacity and international stature. Our location is excellent particularly with our proximity to Austin and San Antonio. Dallas, Atlanta and Los Angeles are very large markets with very large buildings that have traditionally handled more distribution than Houston. But that is changing. As Houston continues to grow, companies are taking a look at our favorable regulatory environment that makes it easier to put up buildings in Houston. Houston is much more favorable to developers who are willing to take the risk of building product for companies that need warehouse and manufacturing space. Houston now seems the place to take demand for big box distribution space.
Realty News Report: Speaking of new construction, what about industrial land? Are land prices going up? Are viable construction sites hard to find?
Walker Barnett: Land prices are stable. Good industrial land in 50-100 acre increments is not as readily available now as it was 5-7 years ago, particular for close-in sites. Current land prices are creating a barrier to entry for some developers planning to enter the Houston marketplace. It all comes down to the balance of supply and demand. If we have a fair amount of vacancy leased up in next 3-6 months then developers will need to build more product.
Realty News Report: The Port of Houston area is a vital part of Houston’s industrial real estate. What’s do you see happening at the Port? Any new trends emerging?
Walker Barnett: We expect to see continued inbound container growth. Some ‘code name’ projects that are contemplated are looking at 1 million SF plus footprints and are tied to shipping through the Port of Houston. We see these projects come up every few years. I’m optimistic. Houston is the Third Coast solution, after the East and West Coast ports. With the widening of Panama Canal, we expect to see continued industrial and port growth because we can get larger ships with more containers through. That increases Houston’s visibility and strengthens its position in the international supply chain. The Port of Houston is the most central of any of the Gulf ports as far as our ability to reach out to the central U.S. region and we have infrastructure in place to handle increases in container traffic.
Realty News Report: Houston’s job growth has improved in 2017, although it’s still a bit tepid. What are you expecting to see in the Houston economy in 2018?
Walker Barnett: Continued job growth in most sectors. We will still see softness in the industrial side in particular sectors because the demand isn’t there for the oil and gas companies for new service equipment. We sure hope it will improve in 2018!
Realty News Report: The economy also has been hit by Hurricane Harvey. Will that create more demand?
Walker Barnett: The industrial sector was minimally impacted. Probably more affected than anyone else were employees, who may have lost a week of pay from Hurricane Harvey. That impacted retail sales. No major buildings that we’re aware of took on water, so the industrial side activity was not interrupted. Also, because of Hurricane Harvey, Lowe’s and Home Depot are increasing their warehouse capacity to meet demand for supplies to rebuild and we think that will continue for 2-3 years.
Realty News Report: What about rail-served projects? Tell us about that sector.
Walker Barnett: Newer, more sophisticated rail service buildings have the ability to store multiple cars on site. It’s a new trend. Look at the Frontier Logistics building at Beltway 8 and SH 225. One of reasons that development worked was the ability to handle a large building and heavy rail car storage enabling the Port Terminal Railroad Association to deliver a large number of car units and store them on site, minimizing the congestion along the main rail lines.
Realty News Report: Look into your crystal ball. What do you see for the future of the industrial sector?
Walker Barnett: I think you’ll see some new industrial product come on line. The chemical plants and refiners are kicking out chemicals that need to be stored so I think you’ll see demand for ‘higher hazard’ warehouses for storage of chemicals before distribution to end users. That will require significant investment to ensure safe occupancy and meet regulatory life safety requirements.