HOUSTON–Transwestern recently appointed Micheal Palmer to the company’s tenant advisory services group as senior vice president. In this role, the 27-year veteran will assist industrial property occupants. Over the course of his career, Palmer has closed more than 1,100 transactions worth more than $1.2 billion. In this exclusive interview, GlobeSt.com talked with Palmer to get his thoughts on the industrial market, how it’s changed and where it’s headed.
GlobeSt.com: In your opinion what is the current state of Houston’s industrial market?
Palmer: All market metrics are positive with many at historic levels. Vacancy has hovered at a 40 year low for over 18 months, building values have never been higher, and demand remains strong. Further, investor interest is unparalleled, new construction has remained in check (so far), cap rates are lower than anyone could have anticipated, and there is readily available access to capital.
Industry elders will tell you they’ve not seen the market this good before, ever! All of our real estate problems are ones of prosperity, and we’re fortunate to live in and experience Houston growing so dramatically with such diversity and opportunity. There are long-term issues that need to be addressed such as traffic congestion, mass transit, improving K-12 education, skilled labor shortages, and more, but our better days are definitely ahead of us.
GlobeSt.com: How has that changed over the last five years?
Palmer: Houston and Texas are the economic dynamo for the United States right now driven primarily by the expansive energy industry. Five years ago the fracking boom was emerging as an economic juggarnaught, creating more jobs than nearly any prior five year period.
Today, from Corpus Christi to Lake Charles, there are $130 billion of energy projects underway with the intellectual capital and administration located in Houston. There was a bit of a lull when lending was restricted and institutional construction paused back in 2009 and 2010, but it was quickly followed by a surge of leasing by light manufacturing companies that absorbed the existing inventory. This led to a development wave of crane served buildings with outside storage across Houston that are a defining characteristic of our industrial marketplace today. Houston may have been the last in and first out of the recession, but the impact on the industrial market was temporary and negligible.
GlobeSt.com: With industrial product evolving, what are companies now looking for in a space?
Palmer: Companies are primarily looking for a location close to the major freeway systems or Beltway 8 to provide easy access for their employees. Further, we are seeing demand for a secured outside storage area and technically efficient facility lighting, cabling, and sprinklers. There are only a few good land sites inside the Beltway suitable for industrial development based on size, price, utility availability, and access, particularly in northwest Houston, which historically attracted 30-35% of all new construction and absorption. Much of the new construction is centered now in rapidly growing north Houston, so we will see how the flight to quality impacts other submarkets and prevailing lease rates over the coming 12-18 months. So far, strong demand has made everyone look smart, but the swelling supply of bulk warehouses in north Houston is well ahead of absorption averages over the past five years.
GlobeSt.com: What do you see as the major strengths and weaknesses of the current market?
Palmer: The weaknesses are macro in nature and directly related to the markets strengths. There is a shortage of good quality, freestanding buildings for sale or lease, higher property taxes, rising construction costs, a longer construction permitting process (three-four months minimum), and a lack of development ready land sites. Again, these are problems of prosperity as the market adjusts to a new level of sustained growth and expansion. 2014 will be another solid year for industrial, to be sure.
GlobeSt.com: Where do you see the market in five years?
Palmer: Houston could be the third largest city in the country in 2019. My predictions of the market in five years are as follows: the area along and south of Holmes Road will be actively under development, Waller won’t seem so far away and the Katy prairie will be sprinkled with subdivisions and light industrial facilities. Traffic in the Woodlands will rival the InnerLoop, current lease rates will be considered affordable, Baytown will capture the majority of the heavy manufacturing/rail served development, downtown and the near east side will be residential destination points, and there will be greater acceptance of light rail for mass transportation.