Houston Commercial Real Estate
HOUSTON (BISNOW-Catie Dixon) -June 18, 2018 – Houston office rents have skyrocketed over the last dozen years, at a clip much faster than any other U.S. city despite the struggles of the past few years. With 43.4% rent growth since 2006, Houston is well above even the second-place market, Dallas, with a 32.2% rent increase, and miles ahead of New York City (23.1%) and D.C. (9.1%), NAI Partners’ analysis of CoStar data shows.
Yet Houston has a lot of room to run in rents. Office users here are paying $27.73/SF, less than half the $61.15 average rent New York tenants are dropping. The big increases since 2006 have pushed Houston past Dallas, which has a $25.18/SF average rate. “Despite the perception in the marketplace that the Houston office market is struggling, this data tells a different story, especially compared to Houston’s national cohort,” NAI Partners partner Dan Boyles said. “While the office market is naturally cyclical, the low points for Houston aren’t as pronounced as they have been in past down markets.”
HOUSTON (BISNOW-DESS STRIBLING) -June 7, 2018 – The impact Amazon might have had on Houston is overstated, the speakers at Bisnow’s Houston State of the Market event said pointing out that companies operating in the Port of Houston are going to spend about $50B over the next five years on new facilities and new technology. That is 10 times the economic impact of Amazon.
One mark of Houston’s expanding economic base is what happened when oil prices tanked a few years ago. The short answer: no recession for Houston, though some parts of the local economy suffered.Did Houston ever stand a chance to be on Amazon’s shortlist? The consensus among the speakers: No. Houston does not have the technical workforce Amazon wanted, for one thing. The city also has a great lifestyle, but not the lifestyle that Amazon wanted — which includes major mass transit and a lot of walkability.
Houston has many strengths as an economy and a real estate market, but those aren’t among them. One challenge for Houston is to convince the country that it can fix its flooding problems — and then actually do it — but other than that, Houston is perceived as a growth city. It is the fourth-largest metro in the country, and on track to surpass Chicago to be No. 3 in the near future. Lionstone Investments Head of Acquisitions Andrew Lusk, whose company focuses on walkable mixed-use locations, said Houston is in favor with the investment community. “In the last 18 months, there have been several marquee transactions here,” he said.
Houston’s being taken seriously as a place to invest. The remarkable thing about the Houston office market, Lusk said, is that the energy downturn didn’t crush it like the 1980s downturn did. Office fundamentals are tough, because there is lot of new supply but not as much demand, and rents have been dropping. But the market isn’t on its knees. Johnson Development founder Larry Johnson, whose company has 17 master-planned developments underway in various markets, representing 74,000 single-family units and 6M SF of commercial space, said that 27,000 homes were developed in Houston last year. The region is No. 2 in the nation by that metric, only surpassed by Dallas, and this year the total may be 31,000 new homes. “There’s tremendous demand for homes and for lots,” Johnson said. “Land prices are rising, but overall Houston has a healthy residential market.”
The Houston economy needs to diversify more, and it is doing so, though the mainstays remain the port, medicine and energy, the speakers said. In the decades ahead, growth will be driven by diversification, including tech. What is at the heart of growth here? The same factors as always, magnified by the current U.S. economic environment. Houston is pro-business and the world knows it. Taxes and the cost of living are low, and there is no zoning. None of those are new factors when it comes to spurring Houston’s growth, the speakers said. But now, especially with the change in federal tax law, there is further impetus for people and businesses to relocate from places like New York and California. All of Texas is going to benefit from this dynamic, and arguably Houston most of all. Avison Young principal Darrell Betts, who specializes in high-profile investment sales, said there is a massive influx of companies from New York and California. “The change in the tax law is bringing people,” he said. “We’re the No. 1 U-Haul destination in the country.” JLL Senior Vice President Simmi Jaggi, who specializes in land sales, especially for retail, said Houston isn’t just on the national stage. The city is being eyed by foreign capital more than at any time in history.
Unlike many markets, urban occupancies for retail remains high, and there is strong growth in development and leasing in the suburbs as well. Food and beverage is on fire especially, Jaggi said. There are challenges for retail, however: land prices have increased, and retail developers are finding it hard to compete against multifamily developers. Betts also pointed out things Houston can do better. Traffic is a struggle. There is no sustainable mass transit from the airport to any major business district, which is a significant missing piece of the puzzle when it comes to economic development. Still, in the long run, Uber and other shared transportation services are going to be a major factor in getting around, lessening the need for individual cars, which might help Houston deal with its congestion problem.
Moreover, the market saw 392 new industrial buildings added during the 2013-2017 timeframe, a 23 percent increase in the number of industrial buildings delivered from previous five years, according to real estate services company, JLL.
Throughout the five-year period, Houston maintained an average total vacancy rate of 4.8 percent. This means even as construction and deliveries ramped up significantly during the 2013-2017 timeframe, total vacancy actually decreased 90 basis points from the average total vacancy rate during the 2008-2012 time period.
Rents are rising too. The latest industrial report shows the average industrial rent rate across all product types is $6.15 per square foot, according to JLL research. The average rent rate in Dallas-Fort Worth, long considered an industrial powerhouse, was $4.41 per square foot as of October, per JLL.
Houston has been a latecomer to the unprecedented growth of e-commerce, but it is narrowing the gap. Not only has the city seen multimillion-square-foot investments by Amazon, UPS, FedEx and others, providers for these major distributors are seeking to establish regional distribution and return centers related to online sales.
A broad swath of industry types are actively in the Houston market for space, providing even more opportunities for developers. Approximately 2 million square feet of industrial space has delivered so far this year, and another 6.7 million square feet of industrial space is currently under construction.
Of the deliveries this year, 86 percent have been pre-leased. That is up significantly even from recent years – 65 percent of deliveries were preleased in 2017, and 54 percent of deliveries were preleased in 2016.
And new construction is continuing. The development firm Hines recently announced Pintail Crossing, a 2.2 million-square-foot industrial park, and NAI Partners announced plans for a rail-served business park in El Campo capable of accommodating 10 million square feet.
After outpacing move-ins for three of the last four years, deliveries in Houston are almost completely in balance with absorption for 2017, meaning Houston’s industrial market will likely have a hot summer.
HOUSTON (Colliers International) – May 8, 2018 – Many retail landlords have made the shift to a strong preference for experience-based retail concepts which cannot be supplanted by an online, e-commerce alternative. As multi-channel retailing continues to mature, the share of e-commerce retail spending in the U.S. grew approximately 17 percent in the past year. Like every other market experiencing these trends, Houston has maintained healthy occupancy and rent growth and it remains a competitive environment for desirable centers.
HOUSTON (BISNOW)- May 3, 2018 – The port increased inbound containers by 21.6% last year, the largest leap in the country, Colliers reports in its 2018 Industrial Seaport Outlook. Houston has been an export powerhouse, and 2017 was the first time in more than a decade that imports exceeded exports.
The shift is coming at a good time — Colliers principal Gary Mabray said potential tariffs on outbound petrochemical products could cause billions of dollars of impact, whereas tariffs on inbound steel products likely will only have a minimal impact on volume. “Import volumes are growing at the Port of Houston because of the port’s excellent logistics capabilities, as well as the need for retailers to keep higher inventories in warehouses to service Texas and the rest of the southern U.S. growing population,” Colliers National Director of Industrial Research James Breeze said.
The Port of Houston’s activity is driving industrial demand in Houston, particularly in the far east submarket. Houston was seventh in the nation for deliveries last year, with 8.5M SF completed, according to Colliers. Activity is accelerating in the east submarket, nearest the port, Mabray said. Pontikes is building 3M SF near the Ship Channel. Avera Cos. is building 1.2M SF in Baytown and Pasadena. Liberty Property Trust is underway on 700K SF at Port Crossing Commerce Center. Much of the activity is targeting distribution, as Houston’s e-commerce logistics market is starting to pick up steam. Amazon, UPS, Best Buy and FedEx set up regional distribution hubs tied to online sales recently, and IKEA just purchased 160 acres in Generation Park to build at least 1.2M SF of distribution space. Booming demand in both Texas markets likely won’t slow any time soon. “We expect this growth to continue as the population continues to grow and economic fundamentals continue to improve,” Breeze said.
Dallas-Fort Worth also added to the surge where many of the imports are funneled via truck or rail. (For example, Randalls relocated its distribution footprint from Houston to Dallas.) Dallas led the U.S. in 2017 for net absorption, with Colliers recording 23.3M SF leased up and 27.6M SF delivered. The Metroplex is on a high of 30 straight quarters of positive net absorption.
HOUSTON (BISNOW) – March 29, 2018 – I attended this BISNOW event. Thanks to population growth, petrochemicals and e-commerce, Houston’s industrial market is dominating — at least locally. The latest industrial report shows the average industrial rent rate across all product types is $6.15/SF, according to JLL research. “However, that is a simplification of real rates. If you look at rates on either Loopnet or CoStar trying to find $0.50 rents in class B or even C product in Harris county is near impossible. If it is New Dock High your looking at $0.80+ p/ft or more in most areas in Harris County. As you go further out into the subburbs rents are lower.” ((Sky))
“I wouldn’t say Houston is dominant in industrial across the country, but we’re the dominant property type locally,” Molto Properties Vice President Chad Parrish said at Bisnow’s Houston’s Industrial Dominance event March 29. “Dallas is very active, maybe too active. Los Angeles is a behemoth. The thing Houston’s hasn’t seen is rent growth.” “We’ve never been a huge rent growth market because of our available land,” Duke Realty Senior Vice President David Hudson said. “I think we’ll get some rent growth back here in a couple years.”
The latest industrial report shows the average industrial rent rate across all product types is $6.15/SF, according to JLL research. That represents a roughly 2% decrease in direct asking rates over the previous year. Houston’s rental rates have not fluctuated much since 2013, floating in the $6/SF range. Recently, increasing demand has modestly pushed rents. “Rent growth is considerably higher on the quarter,” DCT Industrial Vice President Michael Flowers said, pointing to Houston’s population growth and petrochemical industry. Though the area has experienced continuous population growth that will soon push it past the Chicagoland area, Greater Houston is spread out over roughly 10,000 square miles and growing. High barriers to entry help to push rents, but available land and willing economic development councils across the area are keeping the barriers low and tenants can pick up and move further down Interstate 10 rather than pay up.
“There’s a lot of big-box activity going on, but you drive out I-10 and see all the big boxes getting further and further away from the city,” The Richland Cos. CEO Edna Meyer-Nelson said. Major operations like Daikin, Igloo and Rooms To Go are now occupying hundreds of acres and millions of square feet in far west Houston at a fraction of the cost of what that same space would cost in Harris County. Flowers is not totally sold on the idea of Houston’s rent growth attracting national attention. “For institutional investors, the mindset is you have your stocks on the coasts and your bonds in the middle,” Flowers said.
For an industrial market dealing with a major oil downturn, being considered as steady as bonds is a compliment. The overall vacancy rate for Houston industrial space has remained at or below 5.5% for 24 consecutive quarters, beginning with Q1 2012, well before the downturn began. Two submarkets are showing signs of rent growth; the southeast and northwest continue to be the submarket darlings of the industrial sector. The lack of quality land sites available in these core submarkets constrains speculative development. Spaces around the Port of Houston, particularly those that are rail-served, have been hot. According to CBRE, 70% of the 8.5M SF of industrial development in Houston is in the southeast and northwest submarkets.
HOUSTON (OilPrice.Com By Tsvetana Paraskova) -March 19, 2018 –
U.S. crude oil exports are surging and going to a growing number of buyers around the world, including to the fastest-growing demand centers in Asia, the traditional stronghold of the Middle Eastern oil exporters.
Booming U.S. production, expanding pipeline and export capacity, and the more than $3-a-barrel discount of WTI spot prices to Brent supported the surge in U.S. oil exports last year.
This year, it looks like these three key drivers of American exports—higher production, higher capacity, and higher WTI-Brent discount—are here to stay, leading to a continued increase in overseas shipments, much to the frustration of OPEC exporters whose market share of the prized Asian market is starting to erode.
In 2017, the second full year since the restrictions on U.S. crude oil exports were removed in late 2015, American oil exports almost doubled compared to 2016, averaging 1.1 million bpd, the EIA said this week.
The U.S. shipped its oil to 37 countries last year, up from 27 in 2016. Canada was still the biggest export market for U.S. oil, but its total share dropped to 29 percent last year from 61 percent in 2016. The most notable increase in U.S. exports was recorded in none other than China, where Russia and Saudi Arabia have been competing for years for the top spot, with Russia having gained the upper hand in the past two years.
U.S. crude oil exports to China accounted for 202,000 bpd—or 20 percent—of the 527,000-bpd total increase in American exports in 2017, EIA data showed. China surpassed the United Kingdom and the Netherlands to become the second-largest destination for U.S. crude oil exports last year, just behind Canada.
Another large Asian crude oil importer, India, which had not received any U.S. oil in 2016, bought 22,000 bpd in 2017 to tie with Spain as the tenth-largest destination of American crude sales.
It’s not only the high U.S. production that drove the increased exports: the WTI-Brent spread was a major incentive last year. Spot Brent prices averaged $3.36 a barrel more than WTI prices in 2017, compared with just $0.40 a barrel more in 2016, “providing a price incentive to export U.S. crude oil into the international market,” the EIA said.
According to the EIA, this year similar production, infrastructure, and WTI-Brent price conditions will be necessary to keep U.S. exports trending upwards. And it looks like all these conditions are likely to be fulfilled in 2018.
Total U.S. crude oil production will average 10.7 million bpd in 2018, up from the average 9.3 million bpd in 2017, and WTI prices will average $4 a barrel lower than Brent prices in both 2018 and 2019, the EIA said in its latest Short-Term Energy Outlook—a favorable spread for U.S. exports.
So far this year, total U.S. oil production has already surpassed that of OPEC’s leading producer Saudi Arabia, and the United States is on track to topple Russia to become the world’s largest crude oil producer as early as later this year, the International Energy Agency (IEA) says.
In export capacity, the Louisiana Offshore Oil Port (LOOP) recently shipped out U.S. oil on the largest sized supertanker there is after the port expanded to accommodate the bigger vessels. These supertankers, capable of carrying 2 million barrels of oil, could reduce shipping costs, thus making U.S. exports even more attractive, especially on long-haul routes to the oil-hungry markets in Asia.
Rising U.S. exports to Asia are eating into OPEC producers’ market share and threatening to unravel the OPEC/non-OPEC production cut deal, Warren Patterson, a commodities strategist at Dutch bank ING Groep NV, told Bloomberg recently.
“They continue to give market share away to the U.S.,” Patterson said, referring to OPEC’s producers.
U.S. exports will continue to rise in the medium term, and by 2022, the United States will be the fourth biggest oil exporter in the world behind Saudi Arabia, Russia, and Iraq, energy consultancy Wood Mackenzie said at the end of January. The U.S. will export 4 million bpd of light sweet crude of API gravity of between 38 and 45 by 2022, WoodMac has estimated.
The U.S. will continue to import heavy oil, but its light crude will find a market, thanks to global demand growth estimated at 5 million bpd over the next few years.
“OPEC producers and others will compete for market share; but as the marginal supplier, we expect tight oil to capture the lion’s share of incremental growth,” WoodMac reckons.
Then, rising shale production is expected to have a lasting effect on crude price differentials. The Brent premium over WTI has averaged under $3 per barrel over the last three years, but WoodMac expects it to be around $6 per barrel in the coming years.
So far, higher U.S. production and export capacity and the Brent premium over WTI are shaping up favorably for American exports that are already upending global oil markets. How far the disruption will go and how fast the U.S. could become a top five global oil exporter will depend on oil prices and spreads, the pace of U.S. production growth, and a possible response from OPEC if it soon decides it is time it started to defend its market share.
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