DCT® Featured in Houston Chronicle: Q&A: Plastics boom keeps Houston humming

January 25, 2018

An Article in Houston Chronicle by Paul Takahashi

Q&A: Plastics boom keeps Houston humming

Justin Bennett, Senior vice-president of DCT Industrial at a warehouse construction site at 850 Sens Road, La Porte, Tuesday, Jan. 9, 2018, in La Porte. ( Marie D. De Jesus / Houston Chronicle )

DCT Industrial had a busy 2017, despite the oil downturn.

The real estate investment trust broke ground on three new Houston-area facilities totalling 474,000 square feet, and it acquired 48 acres in the Port of Houston.

The Denver-based company is one of the largest industrial owners and developers in the Bayou City, managing 5 million square feet of industrial real estate locally.

Justin Bennett, the senior vice president overseeing DCT's Houston operations, recently visited with the Chronicle about his outlook for 2018.

Q: How's business?

Business is doing very well. A big boon to the industry has been the expansion of plastics. Houston has always been a big player in plastic exports, but that's grown exponentially over the last four, five years as downstream energy companies have benefited from low oil and gas prices. We've seen significant petrochemical expansion along the Gulf Coast, as well as increased container traffic through the Port of Houston. As a result, warehouse demand has flourished in the southeast part of Houston. In fact, the port represented our strongest submarket in 2017. Nearly 70% of all net absorption in the market occurred in the port. As we look out into 2018, the port remains a very bright spot on the map. However, as major petrochemical projects wind down over the next several years, developers will be keeping a careful eye on user demand and the prospect for continued growth there.

Q: How has e-commerce impacted demand for industrial real estate?

A: E-commerce has been a strong tailwind for us, and we've seen larger tenants like Amazon seeking space in our market. Strategically, at DCT industrial, we like to focus on the traditional bread-and-butter users seeking smaller buildings, but these different groups that have made larger bets on e-commerce have a good trajectory of growth. If the demand of yesterday is going to trend in the same direction in the future, I think projects like Oakmont Group's nearly 700,000-square-foot distribution center in Katy will be well-poised to capture the demand. Customers want their products in a very timely manner. To be able to deliver that product in two hours or in a day, many of these companies have determined they've got to be here in Houston, near a dense set of rooftops.

Q: Several developers are building massive industrial facilities on a speculative basis. Are you worried about overbuilding?

A: I think supply and demand are at extremely healthy levels. The amount of pre-leasing that has occurred in the market continues to keep those buildings under construction at a healthy check. For example, 81 percent of the projects we broke ground on last year are pre-leased. Investor appetite for industrial product grew significantly in 2017, which spurred a resurgence of capital investment in the market. As part of our risk-reward analysis at DCT Industrial, we focus on 'calculated risks' versus 'making bets.' This strategy has contributed to a very successful development platform for us in Houston.

Q: How did Houston's industrial market fare during Hurricane Harvey?

A: DCT and most of our peers did not have any significant issues as it relates to our properties because our facilities are dock-high with on-site detention. While Harvey was a catastrophic event for the city of Houston, it was a demand driver for us in 2017. Home Depot and Lowes leased additional warehouse space. All the goods and services that are needed to help rebuild our cities are flowing through our warehouses.

Q: What's the biggest challenge facing the industrial market in 2018?

A: Houston has become a very sophisticated market over the last 10 years. Users are more sophisticated, municipalities are posing more regulations and good industrial sites are encumbered by significant development challenges. Where in the past there was a lot of greenfield development and it was obvious where developers have to be, developers now have to have the foresight of where the demand has to go. It's a big challenge for us. We've had to mature and develop skills that can accommodate and address needs of tenants. What's helped us is Houston continues to be a market where people want to do business and live. That combination is spurring industrial demand. For us, it's an excellent recipe.