HOUSTON-Those viewing the growing plethora of building cranes in Houston might remember another time during which such cranes also proliferated – the 1980s. And those with long memories might remember the outcome of that other time, which was a long-term real estate bust.

But according to a couple of experts who will be speaking at the upcoming RealShare Houston's "Development in Houston" panel, things are vastly different between then and now. For one thing, the demand for industrial and office space is much more prevalent. These experts tell GlobeSt.com that overbuilding isn't an issue – in fact, the problem could be not enough space.

"Colliers International came out recently and said vacancy in The Woodlands is about 0.4%. That's one-half of one percent of vacancy, which is pretty strong," says Paul Layne, executive vice president, master planned communities, the Howard Hughes Corp. – the company that oversees The Woodlands Development Corp. Demand is also strong for residences – both single-family and apartments, retail space and hotel rooms in this particular submarket. Buying power is strong in The Woodlands, prompting more retail development. And the hotel market is on fire. "The numbers are clear that there's a real demand that's not being filled right now," Layne says. "We're looking very seriously at trying to fill that on one or two of our sites."

Layne says the huge 365-acre Exxon campus, which is currently under construction nearby, is one driver of development. But another seems to be corporate relocations. "About 55% of our office tenants filling the last two buildings we've completed have come from outside of Texas," Layne observes. "We're trying our best to develop to meet that demand."

The Woodlands, admittedly, is a unique situation – it's a 2,800-acre, master-planned community in which development is tightly regulated. What makes the current situation area-wide so unique is that it's happening – well, area-wide.

"There are many buildings being built right now, more than what we've been accustomed to for a number of years," notes Michael Wyatt, managing director, CORE Real Estate LLC. "But that, to me, is not really the story. The story is that they're all leased, or are getting leased. What we're seeing in Houston is a continuation of major companies taking down huge slugs of space." And much of that space, he continues is user-driven. The hot markets are The Woodlands – as mentioned above – and West Houston, the area commonly known as the Energy Corridor because of the proliferation of energy companies headquartered in that area.

To no one's surprise, energy is the driver behind the current CRE development boom in Houston. But it isn't just energy, as in gas prices. "I've been in business in Houston since 1980, and one of the things we've never seen is all three areas of the energy business in expansion mode," Wyatt notes. The three areas – downstream, upstream and midstream – make up approximately 50% of Houston's economy. Expansion mode, of course, means more space requirements.

But those requirements are running into some obstacles. Some involve regulations, such as what goes on in The Woodlands. Even in Houston proper, where there are no zoning regulations, development isn't fast enough to meet supply, with the main reason being capital. Or rather, restrained capital. Because of the 2008 meltdown, banks are operating in a highly regulated market, which makes it difficult for them to fund speculative real estate. Furthermore, Wyatt points out that the institutional equity players are also being careful taking positions in new development and speculative buildings. "They'd rather invest in buildings that are completed and leased," he says.

The huge demand and constrained supply isn't likely to change any time soon, either. Both Wyatt and Layne predict single-figure vacancies in the near term, and Wyatt goes so far to suggest that absorption will likely drop because of constrained supply. "I think there will be a couple of quarters where there could be no space available," he adds. "Things coming to market now are already gone; there's little availability."

Instant Insights /

Going As Fast as its Built: Development in Houston

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