HOUSTON – (Realty News Report) – E-commerce is reshaping retail and driving major shifts in industrial real estate. In Houston, developers are building larger warehouses than ever as consumer goods arrive on big ships from overseas and the expanded Panama Canal enables larger vessels to reach Gulf ports. Many industry observers say Houston is stepping into the national distribution spotlight. To explore where the city’s industrial market is headed, Realty News Report spoke with one of Houston’s leading industrial experts: Walker Barnett, SIOR, Principal and Director of Colliers International’s Houston office.
Barnett specializes in industrial sales and leasing, covering warehouses, manufacturing facilities and land. He leads Colliers’ team of 22 industrial specialists in Houston, consistently ranks among the city’s top brokers, and has produced revenue results that place his office in the top 10 percent globally within Colliers. He holds the SIOR designation (Society of Industrial and Office Realtors) and recently served as president of the Houston Gulf/Coast SIOR Board in 2016.
Market Sentiment
Realty News Report: You stay closely connected to the market and recently served as SIOR president. How would you describe current commercial real estate sentiment? Is the mood positive?
Walker Barnett: Overall, sentiment is positive. Developers are following population growth, which remains strong, and industrial demand is increasing from e-commerce and consumer products companies seeking larger distribution facilities. On Houston’s east side, we’re seeing considerable activity around plastic resin logistics. Combined, e-commerce, resin packaging logistics and consumer goods distribution support a healthy industrial market. That said, the resin-related leasing could moderate as new plastics plants come online and the market better reveals true demand.
Where the Market Stands
Realty News Report: Heading into the fourth quarter, how would you characterize Houston’s industrial market—strong, weak, or normal?
Walker Barnett: I’d call it normal. Several larger deals are expected to close by year-end, with absorption continuing into the first quarter. Houston has emerged as a core industrial market, and investors and capital providers are willing to deploy funds where fundamentals make sense. Developers continue to build speculative and preleased buildings to meet demand. Growth through inbound migration and natural population increase should sustain distribution needs, and future patterns will likely favor locations closer to end users.
Why Bigger Projects?
Realty News Report: Houston is seeing more large industrial projects. Why is that happening?
Walker Barnett: Historically, major distribution hubs were Chicago, Dallas, Atlanta and Los Angeles. Houston’s position is shifting due to population growth and the Port of Houston’s growing capacity to handle containers. Our central location—especially proximity to Austin and San Antonio—combined with a developer-friendly regulatory environment makes Houston attractive for big-box distribution. Developers who take the risk of building large warehouse and manufacturing facilities are finding Houston a favorable market for such projects.
Industrial Land and Development
Realty News Report: What’s happening with industrial land? Are prices rising and are quality sites harder to find?
Walker Barnett: Land prices have been stable, but large, well-located industrial parcels—especially 50 to 100 acre sites—are less available than they were five to seven years ago. Close-in sites are particularly scarce, and current land values can create barriers for some developers entering the Houston market. Ultimately, supply and demand will dictate activity: if current vacancy is leased up over the next three to six months, developers will need to add more product.
The Port of Houston
Realty News Report: The Port of Houston is central to the region’s industrial activity. What trends do you see at the port?
Walker Barnett: We expect continued inbound container growth. Several large projects under consideration could involve footprints exceeding 1 million square feet and rely on the Port of Houston for shipping. The widened Panama Canal enhances Houston’s role by allowing larger ships to call here, increasing container volumes and the city’s visibility in the international supply chain. As one of the Gulf’s most centrally located ports, Houston can efficiently reach the central U.S., and its infrastructure is positioned to handle increased container traffic.
Jobs and the Local Economy
Realty News Report: Houston’s job growth improved in 2017 but remained modest. What do you expect for the Houston economy in 2018?
Walker Barnett: I anticipate continued job growth across most sectors. Some industrial segments, particularly those tied directly to oilfield services and equipment, may remain soft because demand for new oil and gas-related equipment hasn’t fully recovered. We’re hopeful for improvement in those areas during 2018.
Impact of Hurricane Harvey
Realty News Report: Hurricane Harvey affected the economy. Will recovery create more industrial demand?
Walker Barnett: The industrial sector sustained minimal structural damage; employee hardship and lost wages had a greater immediate impact, which dampened retail sales. We’re not aware of major industrial facilities suffering significant flooding. One lasting effect is increased demand from home improvement retailers—Lowe’s and Home Depot are expanding warehouse capacity to support rebuilding efforts, and that demand could continue for two to three years.
Rail-Served Facilities
Realty News Report: How are rail-served industrial projects evolving?
Walker Barnett: A notable trend is more sophisticated rail-served facilities that can store multiple rail cars on site. These designs enable efficient car delivery and staging, reducing congestion on mainlines. For example, the Frontier Logistics facility at Beltway 8 and SH 225 benefits from on-site rail car storage and coordination with the Port Terminal Railroad Association, allowing large car deliveries while minimizing mainline impacts.
Outlook for Industrial Real Estate
Realty News Report: Looking ahead, what do you see for Houston’s industrial sector?
Walker Barnett: Expect new industrial product to come online. With ongoing activity from chemical plants and refineries, there will likely be growing demand for specialized “higher hazard” warehousing to store chemicals prior to distribution. Meeting that demand will require substantial investment to ensure safe occupancy and compliance with life-safety and regulatory standards.
Oct. 30, 2017 Realty News Report Copyright 2017