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Lee Says Tenant Sentiment is Up: ‘They are Excited and They are Looking at Space’

Mike Spears

HOUSTON – (Realty News Report) – West Texas Intermediate crude is $64 a barrel, oil well drilling activity is increasing and the Houston commercial real estate market is feeling good about it, according to a major player in the city’s industrial property scene.

“The sentiment of our clients – and we have a lot of oil and gas clients – is great. They are pumped, they are excited and they are looking at space,” says Mike Spears, managing principal of Lee & Associates – Houston. “They are moving and they are moving very quickly.”

The market is on an upswing, with more than 6.2 million SF of industrial space is under construction in Houston and rental rates are rising, according to Lee & Associates.

“We’re going to see that trend continue in 2018 and 2019,” Spears said at the recent Lee & Associates media breakfast.

E-commerce is creating more demand for distribution space as Amazon and other retailers compete with bricks-and-sticks retailers. The need for “last mile” distribution outlets had generated a strong demand for warehouse land in Houston’s densely populated Inner Loop, said Reed Vestal of Lee & Associates.

“We believe that’s just beginning,” Vestal said.

In West and Northwest Houston, big retailers are looking for locations for major distribution facilities, he said. Amazon is building a 1 million SF facility in the Katy area, to name one.

The market for manufacturing crane-served buildings, where steel oilfield equipment and valves are produced, was hit hard during the downturn in the energy markets, which reached rock bottom when WTI dropped below $30 a barrel in early 2016.

“North Houston was overbuilt in 2015 when oil and gas took a downturn,” said Lee’s Robert McGee.

But the U.S. rig count was up to 936 operating rigs last week, up 35 percent from a year ago, according to Baker Hughes. The energy markets are a long way from the peak, but conditions have improved.

Houston’s office market will not recover overnight. Widespread layoffs in the energy industry generated a lot of vacancy even while office buildings were still being built. Some 40 million SF of new office space has been added to the Houston office market since 2010, said Chris Lewis, managing principal at Lee. A few years ago, Houston led the nation in office construction with more than 17 million SF under construction.

When the bottom fell out of the energy and office markets, the supply of sublease office space soared to a record high – more than 12 million SF a couple of years ago.

The office market got a temporary bump from Hurricane Harvey as some companies relocated from damaged buildings. In the fourth quarter, Houston registered its first quarter of positive absorption in 18 months. Citywide vacancy, according to Lee, is 16.3 percent. Counting sublease space, some 50 million SF is vacant.

“I think it’s going to take some time to absorb it,” Lewis said.

Jan 23, 2018 Realty News Report Copyright 2018






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