Robert Clay, Owner, Clay Development

In an interview with Invest:, Robert Clay, owner of Clay Development, discussed Houston’s industrial real estate momentum, the resurgence of manufacturing, and why the region continues to attract investment despite higher costs and interest rates. “Inflation is real, and costs continue to rise, but you still have to do business. If you are operating in a market like Texas, you are in a strong position,” Clay said.

How would you describe Houston’s commercial real estate market today, and what trends are having the biggest impact?

The market in general, whether industrial or office, is better this year than it has been in a long time. Retail continues to do well, and while multifamily has had a more challenging period, it is still doing reasonably well.

Industrially, we have seen great momentum over the last year, and really over the last decade. I started in this business in 1990, and with the exception of 2009, every year has gotten better. Houston was one of the last markets to feel the Great Recession, but we were also one of the first to recover.

For the last 10 years, we have generally built about 1.5 million square feet of speculative distribution space every couple of years. This year, we have more than 4 million square feet under construction across the Houston area.

My father and I started Clay Development in 1998. We began as a manufacturing-focused developer because distribution was not a major market in Houston then. Distribution really started growing around 2006 and accelerated after 2015, when Houston became one of the country’s major distribution hubs.

Manufacturing is my true passion, and after slowing significantly when oil prices dropped in 2015, we are finally seeing new manufacturing projects return. We own roughly 4 million square feet around Houston, almost all manufacturing space, and we remain about 98% occupied. The continued strength of distribution alongside the return of manufacturing is one of the biggest changes we are seeing.

What makes Houston such an attractive place, and where do you see the strongest opportunities for growth?

Texas continues to attract people and businesses because of its business climate. We are a tax-free state, and Gov. Greg Abbott has done great things for the state. For years, we heard about companies leaving places like California, but over the last two or three years, we have really started seeing it ourselves. I would guess that 20% to 25% of the larger deals we see involve companies relocating from California or other states.

I do not think that trend is going to stop. It continues to expand Houston, and if you look at the growth in distribution space from 2000 through today, the increases are remarkable.

How are higher interest rates and construction costs affecting the way you evaluate new projects?

Clay Development is privately funded, and we have continued building through both low- and higher-interest-rate environments. Our speculative development strategy has not changed, whether rates were 3% or 6.5%.

A lot of institutional developers slowed down because of interest rates, but we kept moving. When I entered this business in 1990, interest rates were 8.5% or even 10%. By historical standards, today’s rates are not especially high.

Construction costs have certainly increased. Years ago, we could estimate projects quickly because pricing barely changed. Today, every project requires fresh pricing before going to contract, and that has made everyone’s job harder.

Inflation is real, and costs continue to rise, but you still have to do business. If you are operating in a market like Texas, you are in a strong position.

What are tenants looking for today, and how has that influenced the way you build?

There have not been many major changes. Once warehouse buildings reached 36-foot clear heights, most users found that to be the right balance. Some developers experimented with 40-foot buildings, but many tenants found those heights impractical because of forklift limitations and safety concerns.

Today, most distribution users simply want a functional building with 36-foot clear heights, appropriate truck courts, a good location, and competitive costs. Beyond that, there have not been many meaningful design changes.

Some developers are looking at solar installations, but for us, it has not made financial sense in Texas.

How are technology, AI, and data analytics affecting industrial real estate?

We have only recently started discussing AI within our company. I have been using it personally over the past few months, and it is an impressive tool. It can help people become more knowledgeable and work more efficiently, although it is still wrong often enough that you have to verify what it produces.

In our business, however, relationships remain the foundation. Industrial real estate is a one-on-one business built on knowing people and knowing your market.

National statistics do not tell me much. Even statewide numbers have limited value. What matters is what is happening in Houston, at the port, in northwest Houston, south Houston, or wherever a project is located. Those local conditions change constantly.

I do not believe AI or data analytics can replace that level of market knowledge. Real estate brokers and developers are successful because they understand their markets day by day and project by project. Markets evolve quickly, and I do not think AI can capture those changes fast enough.

What are Clay Development’s top priorities over the next two to three years?

We are going to continue doing what we do best. We expect another strong year for build-to-suit and design-build projects. Last year, we completed two buildings totaling about 1 million square feet, along with several smaller projects, and this year is shaping up to be as strong or stronger.

We could easily start 4 million square feet this year, which is significant for a privately owned company. We are simply going to keep our heads down and continue designing and building manufacturing and distribution facilities, which is where our expertise has always been.