Houston Evolves as a Gateway Market and Regional Industrial Hub; Real Estate Experts at BoyarMiller Forum Cite Changes in Consumer Behavior, Mobility as Key Future Issues

Chris Hanslik of BoyarMiller, Jimmy Hinton of HFF, Abbey Roberson of the Texas Medical Center, Trey Odom of Avera Companies, and Blake Royal of BoyarMiller.

HOUSTON (February 6, 2019) – Experts in Houston’s commercial and industrial real estate sectors agree that the city has evolved as a gateway market and will continue to attract overseas capital investment this year.

The good news was shared at the annual BoyarMiller Real Estate Forum where Jimmy Hinton of HFF, Trey Odom of Avera Companies, and Abbey Roberson of the Texas Medical Center provided their perspectives on Houston’s real estate landscape.

“Our speakers highlighted the opportunities and challenges ahead for the industrial and commercial real estate markets in Houston, including progress on the city’s mobility and transportation issues,” said Chris Hanslik, chairman of BoyarMiller. “The discussion reflected optimism and pride in Houston as a more economically diverse city that is showing signs of being less dependent on the price of oil, and that was a refreshing and welcome message for our audience of about 150 Houston business investors and real estate professionals.”

Top-tier market leads to growth

Hinton is managing director of HFF and responsible for the firm’s research. He believes that 2018 was the first year that investors in the real estate industry truly considered Houston in context with other markets, and not in a separate category classified by its overarching banner as the energy capital of the world.

“It is a significant shift that people outside of Houston are recognizing the city as a gateway market, meaning it is a major international city that attracts overseas capital,” said Hinton. “We can thank the city’s developers for making that happen. They are listening to and addressing the needs of consumers with their products, like mixed-use properties with better mobility and walkability. That is the biggest change I saw last year.”

Hinton admitted that investors still care about the price of oil. “But it is seen less as an indicator of what will happen with property fundamentals, especially outside of the office sector,” he said.

“Houston was the number one growth market for jobs in the country last year, which is shocking in an environment of $50 oil. We are now considered to have more economies with many sectors and subsectors that attract investors. And that feels amazing.”

Hinton said that the impact on the office market “has not been rosy,” but Houston is starting to experience tenant demand similar to what is occurring in other cities.

“Tenant preference is not so much about large deals of 200,000-plus square feet at a time. It is 5,000 to 20,000 square feet with shorter durations, and development doesn’t require having to convince capital partners that a tenant will sign a well-above-market lease rate,” said Hinton. “And that is just the type of market place that capital outside of Houston wants to see; it is the trend we are observing in other major cities.”

Industrial real estate going strong

Avera Companies President and CEO Trey Odom called 2018 a “wonderful” year for Houston’s industrial real estate sector.

“The fundamentals are excellent. Last year, we had 11 million square feet of property, and we absorbed nine million of it, or 80 percent,” he said. “The state of our industrial market is really, really good.”

Odom cited interest from the capital markets and overseas investment as strong indicators of a positive forecast for Houston’s industrial real estate.

“The biggest concern is always what the Fed will do with interest rates and that seems to have stabilized a bit. The tenant mix is good and balance sheets are strong,” said Odom.

He predicts the biggest challenge for industrial real estate is finding large contiguous land sites in town for “big rectangular buildings.”

“Land sites are more difficult to find and more expensive to acquire,” said Odom. “So land acquisition is pushing toward the outside boundaries of the city, and that trend will continue as Houston becomes more of a large regional hub.”

According to Odom, Houston competes as a regional hub with Dallas, Phoenix and Memphis. However, the Port of Houston gives Houston an advantage, and Odom predicts more inbound activity will be coming from the Far East this year.

Odom also cited the modernization of the warehouse with automation as a continuing trend impacted by e-commerce and changing consumer buying habits.

“U.S. e-commerce growth is at nine percent and every one percent of e-commerce represents 400 million square feet of warehouse space. That is amazing and will continue to evolve,” said Odom. “In the future, we might see multi-level industrial properties in Houston like those in other places around the world.”

TMC and mobility

As vice president of planning for the Texas Medical Center, Abbey Roberson addressed an “innovation eco-system” that will continue to develop Houston’s urban core.

“TMC has incredible density and is more than a medical center; it is a medical city,” she said. “What is happening at TMC also involves midtown, downtown, Rice University and other areas because we have symbiotic relationships. We must continue to evolve and address mobility and transportation issues along with changing consumer behaviors. We must consider the use of rideshare services and how that fits into mobility plans.”

Roberson said there are 58,000 parking spaces at TMC. However, there are also 110,000 employees, 40,000 students and hundreds of thousands of patients, family members and visitors that are going to TMC daily.

“That is a staggering fact. We absolutely rely on shuttles, buses and METRO light rail,” said Roberson. “We are examining what we can do within TMC and elsewhere to collaborate with mobility partners. We have both challenges and opportunities in looking at how we are connecting with autonomous vehicles, rideshare, and how we use our parking assets.”

Roberson said it is imperative that TMC and Houston as a whole understand what consumers want in terms of mobility and transportation solutions that are sustainable.

“Quality development and mobility are important on so many levels including the ability to attract talent for TMC and remain competitive in a global market,” said Roberson. “Development that is happening in midtown and elsewhere is critically important to us in attracting the best and brightest minds. What makes them want to come to Houston is not just their work at TMC. Houston as a whole must attract global talent.”

Transformation of the Old Spanish Trail corridor and TMC’s mid campus over the next five to 10 years is highly anticipated due to the development of TMC³. It is a biomedical research hub that will cluster researchers and industry experts together on a collaborative 30-acre campus for the purpose of commercialization of health solutions.

“TMC receives more funding from the National Institutes of Health and has more patients than anywhere in the world so we can do clinical work and trials. Now we will also be able to address the commercialization side through this translational research unit,” said Roberson. “TMC³ brings a lot of opportunity not only for the TMC campus, but the entire Old Spanish Trail corridor where some of the research facilities and office buildings will be located. It is a very exciting initiative.”

To hear the presentations from the BoyarMiller Real Estate Forum visit www.boyarmiller.com.