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Industrial Realty is Hot: The Q&A with Charlie Christ of Clay Development and Construction

Charlie Christ

Charlie Christ

Despite the drop in energy prices, Houston’s industrial sector remains robust. Earlier this year, heating, cooling and refrigerant product manufacturer Daikin Industries announced it was expanding in Space City with a new 4 million-square-foot campus with 4,000 jobs. Such activity is providing a boon to firms such as Clay Development & Construction, a design/builder of industrial build-to-suit facilities. Clay has developed over 190 industrial and office buildings comprising approximately 12 million square feet ranging from a 10,000 square foot structure to a 900,000 square foot distribution facility. Also over the past two decades, Clay has developed 21 industrial business parks totaling over 1,000 acres. Realty News Report talked to Charlie Christ, director of development at Clay Development & Construction, about the city’s industrial market and where the sector is heading.

Realty News Report: How would you describe the state of the Houston industrial real estate sector today?  Will rents continue to rise? Vacancies?  Construction?

Christ: The Houston industrial market is currently strong and we are still very busy and looking for new sites.  Some submarkets are better than others, but we like our positions around the city. While the vacancy rate continues to drop with distribution buildings, the manufacturing side has slowed with the uncertainty in the energy industry. Unlike other real estate markets, Houston industrial developers have always done a fairly good job of keeping the market in check. With several buildings sitting vacant, the newer developers in the market will probably further slow their construction. I feel the rental rates will hold steady and hopefully construction cost will come down some.

Realty News Report: What’s the outlook for Houston industrial over the next year or so?  Are their any global investors looking to buy industrial in Houston now?

Christ: Many national and international investors have focused on the Houston market over the past few years.  We are still seeing a lot of interest from both local and national buyers. That may slow down a little bit with the price of oil being where it is.  That doesn’t mean the market outlook is bad. It means that the market will get better for local investors who believe in the long-term viability of the market and understand that Houston is becoming more diversified every day.

Realty News Report: What’s propelling the industrial real estate market now?

Christ: Localized demand to service the greater Houston market, a strong increase in user interest from the petrochemical industry, domestic and international distribution, and continuing growth at the Port of Houston have driven a surge in development activity in the southeast submarket over the last two quarters.

Realty News Report: Will the decline in energy prices change Houston’s industrial market? Is the expansion in the petrochemical industry generating a lot of growth?

Christ: Oil prices have affected the industrial market but not as bad as expected. It will be interesting to see how things change over the next year or so with the consolidation of several larger oil field companies.  On the east side of town, the petrochemical industry is generating growth and absorbing vacancy. We have several projects underway or about to start in the Southeast market. The northwest market continues to see positive absorption of the larger distribution space that has been built over the last few years.

Realty News Report: Does Clay Development & Construction have any new projects planned in Houston?

Christ: We have a number of new speculative buildings coming out of the ground and we are working on a few new business parks.  We are pretty well diversified with active projects in each submarket surrounding the Beltway as well as a few developments in other areas. We have several projects and new business parks we are developing in the east and southeast markets including Deerwood Glen BP, Energy Commerce BP, Sheldon BP and a 500,000 SF spec building in Cedar Port.

Realty News Report: Has the business park changed?  Any new bells and whistles?

Christ: As a whole, the business park sector has not changed all that much. Tenants still expect ample amount of utilities, good ingress and egress to major thoroughfares, and well thought out infrastructure.  Tenants want to be in a well-located and well-managed development.

Realty News Report: Will the widening and expansion of the Panama Canal make a difference in Houston? Will the Ship Channel receive more business?

Christ: The Canal’s expansion will certainly have an impact on the movement of goods throughout the world. Most ports along the Gulf and east coasts will see an increased amount of activity. Houston is well positioned to take advantage of the increased traffic because of its centralized location, its infrastructure, its excellent connectivity with roads and rail and the Port’s continuous commitment to position themselves for future growth.

Realty News Report: The east side of Houston seems strong. What’s happening there?

Christ: The Port and the petrochemical business are driving much of the demand in the southeast submarket. Because the submarket is so tight, it’s hard for tenants to find space. The supply is very limited.  We’re seeing more proposed buildings and new spec construction start on the eastside, but well located sites with limited impediments are hard to find, especially at prices that make economic sense. Developers are starting to look further out east, northeast and southeast sides into areas like Baytown for land sites. Well-located sites with great access to interstates and rail connectivity are very limited in the southeast submarket, we believe demand will increase in such locations as Cedar Port, where we have a 500,000 SF spec building starting construction in the fourth quarter of this year.

Realty News Report: Northwest Houston has long been the dominant area for industrial real estate. Will that change in the future?

Christ: Because of the great access and employee base, the northwest will continue to be one of the stronger markets. The problem will be finding land at prices that allow industrial development. We believe you will see a shift to the west side of town to fill the void of the lack of land in the northwest market. We have seen an increased amount of demand in our developments in the Katy area (Pederson West Business Park and Stonegate Business Park).  The demand is across the board from smaller manufacturing operations such as Weatherford to large distribution users like Rooms To Go or the Igloo expansion.

Realty News Report: Where do you see Space City’s economy heading over the next 12 months?

Christ: The price of oil is the unknown and it will certainly have an impact on the local economy. I don’t believe it will be as bad as predicted.

Texas-based Realty News Report is edited by Ralph Bivins.

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