Industrial's Domination

Houston’s industrial product once took second billing to Dallas, but those days are over. Now we’re a top pick for investors and users alike, according to experts at Bisnow’s fourth annual Industrial Real Estate Summit yesterday. And that’s pushing pricing, rents, and the amount of frustrated searching you need to do to find a site. (Whole search parties of industrial seekers have gone missing.)

Trammell Crow SVP Jeremy Garner (our panelists were prepared to build, with vests and hardhats) says there are industrial sites worth $5/SF, which would’ve sounded absurd a few years ago. Those are usually in business parks with deed restrictions and off-site detention. Since it’s so difficult to find tracts in desirable areas that don't have hair on them, developers are starting to push through the difficulties, he says. His team recently assembled three tracts in Northwest Houston, where it will develop Fallbrook Pines (700k SF of spec product will deliver there this year). But it involved purchasing three unlisted tracts, which was very challenging. If you’re calling Jeremy about Fallbrook Pines, ask him about the Lincoln Town Car stretch limo he and some buddies once purchased for $2,500. (Just don't tell him we told you.)

Adkisson Brokerage & Development principal Steve Adkisson says the increasing percentage of office space in industrial product is driving both rates and lease terms. 10% used to be a normal amount, but he’s seeing that leap up to 40%. That involves more employee parking, and he says it requires longer lease terms for those office-heavy properties. (It also creates confusion among employees who can't seem to figure out office dress code.) Steve plans to launch 15 buildings this year.

Arch-Con VP Jason Cooper is over worrying about construction costs. He says every year you hear they’re going to shoot up. But it’s rarely as dramatic as you fear. He’s bid two projects already this year and says concrete has gone up $4 a yard, but everything else is pretty steady. Labor is still a big problem, but there’s an easy fix in sight—when construction of Exxon’s campus is over, we’ll get our labor pool back, says Jason. Arch-Con built $50M of industrial last year, and is about to kick off two industrial projects, a 200k SF property off West Road and an 80k SF one in Missouri City. (As you can see we also brought some hard hats for mice.)

EastGroup Properties SVP Brent Wood says people hate to hold land without income for any time, but inventorying land through the recession was smart and has allowed EastGroup to do more BTS and multi-phased product. LEED didn’t fare so well—Brent says its buzz has calmed significantly now that the market has improved. His firm began building LEED in ’09 and realized it was already implementing many sustainable features. But the process is arduous all the same, and he finds that tenants and investors couldn’t care less about it. (They only care about a different kind of green.) What keeps him doing it: Concern that not going LEED will make his buildings obsolete in the future.

Hines is a big believer in LEED, says managing director Palmer Letzerich (who once kayaked down an Alaska river for 10 days), but he finds it’s prohibitively difficult to do for spec industrial. (LEED pushes back when it doesn’t know what your user will do with the building.) But he does like to go LEED on BTS properties; HD Supply’s 500k SF building in Pinto Business Park will be certified. Speaking of Pinto, Palmer says Hines wants a mix of cross-dock and rear-load product; it’ll sort of alternate between building the two to keep availabilities open in both.

Many thanks to our moderator Seeberger Architecture prez Perry Seeberger, who designed and built our beautiful set. (He also had to frantically pull it out of the road when it fell out of a pickup, but that's another story.) Our "construction trailer" stage included blueprints for an exciting new project his firm is designing. It’s a 200k SF BTS in TCC’s Lakeview Business Park for Rich Products. Perry says the firm is relocating two plants, one from New Jersey and one from California.

McCord Development director John Flournoy says our sponsor Generation Park will launch $30M in infrastructure within 90 days. Perks for industrial users include no onsite detention and Houston’s largest foreign trade zone, which saves users 65% on inventory taxes. Generation Park can accommodate huge users (the master plan includes room for 1M SF, 2M SF, and 3M SF buildings).

In case you’re wondering, those reflectors work.