How the Commercial Real Estate Market Has Changed in the Houston Area

Over the past few years, Houston’s commercial real estate market has evolved in ways we could have not expected. We have seen some impressive growth in the whole market in such little time. For instance, the retail market has had over 26.9M square feet delivered in the past 3 years. Below we will be reviewing the change in the retail, industrial, and office sections of the commercial real estate market in Houston.

Houston’s Retail Real Estate Market

There has been regular and remarkable expansion in the retail real estate market. There has been over 7M square feet delivered just in the past year! The growth keeps getting better as there is presently 4.1M square feet still under construction. PerCoStar Property (The leading market inventory informant both in the US and UK), Houston is presently ranked second for Ft. worth in construction activity in the whole country just below Dallas. The fact that most of the retail space currently being constructed are pre-leases is more than enough to show you how much this market is after growth. However regardless of the market expansion throughout the years, their average retail vacancy rate has always been significantly low.

Houston has also racked a lot of new tenants in the past few years with some of the recent tenants like; Pinstripes, The Kirby Collection, Shake Shark, Total Wine and many more. With the recent rate of Houston’s market development, we can expect many other new tenants to join in. For instance, A drive-through grocery concept Farm Stores and the commons at Willow brook have announced their plans to open their first branches in Houston in 2017.

Houston’s Office Retail Real Estate Market

While Houston has strongly dominated the Retail Real Estate Market over the past few years, the energy industry has been holding the office market back. As a result, there has been reduced leasing activities and negative net absorption good commercial leasing firms like The Weisblatt law firm. Leasing activities have decreased by almost 30{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} just in the past two quarters. While a lot of tenants are renewing existing leases, most companies are refusing to expand but keep contracting.

In just the past quarter, Houston’s office real estate market experienced a negative net absorption of 0.4M square feet Without any regards to the positive absorption year-to-date, the city-wide office vacancy in Houston still increased by 1.1{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} in the past quarter, the annual rate also rose from 14.5{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} to 260 basis points. This was due to the extra space completed and included in the market.

Houston’s Industrial Real Estate Market

The rate at which the industrial inventory has been getting absorbed has been increasing by a lot just in the past few years. Take for instance, about 6.5M square feet was absorbed in the third quarter of 2016, quite impressive compared to the 2.2M square feet absorbed in the third quarter of 2015. Industrial leasing activity on the other hand has been fluctuating slightly with just a regular difference of 1.0M square feet.

The average vacancy rate rose from 4.6{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} to 5.5{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} (about 90 basis points) in just a year. This increase looks like it’s going to be around for a while because most of the square feet of new construction delivered late last year was pre-leased. Also, about 64{df80582cf8337399a397ccda41002f852f27e98f323712545129bf6d80f36253} of the 7.3M square feet presently under construction are pre-leased. Another questionable change over the years has been the location of new buildings. For instance, most of the new buildings under construction are situated close to Houston’s Port and Ship Channel on the east side of Houston.

 

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