The Upside of Dropping Oil Prices

Experts at Bisnow’s Industrial Summit yesterday weren’t concerned about depressed oil prices damaging the market. On the contrary, some think it might cause a positive correction for the industry.

If we have a short dip and quick recovery, the pause in the market may be healthy, says Arch-Con VP Jason Cooper. We can absorb recent spec projects, and get pricing (from land to construction pricing and labor and rents) down a bit. He thinks construction costs/labor will stabilize this year once contractors have worked through their backlog—he predicts a 6% to 8% dip in construction costs. Pictured are our panelists: Stratton Development & Construction president Casey Butaud, TNRG senior broker Robert McGee, Arch-Con VP Jason Cooper, Kirksey VP Marty Fifer, Avera Cos VP Peter Billipp, EastGroup Properties SVP Brent Wood and Transwestern managing director Brian Gammill.

350 attendees joined us at the JW Marriott. Despite the talks of a break in construction, Jason hasn’t had any of his deals get stalled. (Although he knows it's happening in the market.) Rather, they’re reducing their scope. Meanwhile, his pipeline is strong and he’s still getting a fair amount of RFPs (mostly for build-to-suits and smaller deals than he had been seeing).

Robert (here with Cadence McShane’s Drew Donnell) says the weakened market might make it easier to get some deals worked through because tenants and landlords could be more reasonable. Robert’s being cautious about development and especially trying not to build what there’s already a lot of on the market. He’s also getting good user activity, and says there isn’t as much development as you might think—a lot of what was announced didn’t start, and he thinks what's on the ground will be absorbed.

Brian thinks everything will get repriced this cycle and land will adjust quickly, and says prices are already trending down. (Brent disagrees; he says sellers take a while to accept what's happened and adjust what they’re asking for.) The market is in great shape, with 95% occupancy, and 8M SF of absorption last year. He says East Houston is the bright spot right now—it had 1.8M SF of absorption in 2014, the most of any submarket.

Here’s Peter with Transwestern’s Michael Palmer—he says the completion of the Panama Canal expansion this year will be a wind in our sails, but it won’t be a gamechanger. Peter thinks dropping oil prices will bring Houston back to our core product, like cross-dock buildings. As Houston gained national attention lately, some users pushed for properties like they were used to in Dallas or the Inland Empire. Developers already were pretty good about sticking to things that work here (it’s easier to backfill if a user leaves) but Peter thinks we’ll get even more back to our basics. Peter moved to Houston from Boston when he was 10 months old, so he’s rooting for the Pats on Sunday.

We snapped sponsor Gulf Inland Logistics Park developers Mark Sjolander and Marcus Goering and Ketone Partners’ Kyle Schuhmacher. The 1,500-acre property sits northeast of Houston in Dayton (Liberty County). It’s dual rail-served by BNSF and UP, and has immediate access to Highways 146 and 90. Kyle tells us the City of Dayton and Liberty County have both been very aggressive with economic incentives for users, and the pro-business area has great access to labor. The park is shovel-ready, with utilities provided by the City.

View Dynamic Glass’ John Nicewick (a Bisnow sponsor) says his product tints electronically to respond to the outside world. Besides keeping the sun out of your eyes (or keeping it from being dark and dreary), Dynamic Glass tinting windows also help moderate the temp in your office.