Oct. 17–Houston's industrial and retail sectors remain strong, while the region's hotel and office sectors are improving, brokers at a CBRE commercial real estate panel discussion said Tuesday.
The pipeline of proposed hotels totals nearly 16,000 rooms in 152 projects, representing an 18 percent increase in the supply across the Houston area, CBRE said. Not all of the projects will get built.
"If you are a hotel owner in Houston, you're dealing with an onslaught of new supply in pretty much every market," CBRE senior vice president Rahul Bijlani said.
"Overall demand growth in Houston is going up. It's just that supply is going up faster," Bijlani said.
Revenue per available room will likely take until 2021 or 2022 to get back to peak levels of $77 in 2014. Houston is on track to end the year with revenue per available room rate of about $70.
Institutional buyers are targeting markets such as downtown and the Texas Medical Center, where properties are not being discounted, Bijlani said. He added that investors making long-term bets on Houston are buying properties at costs that are below what it would take to replace a property and are willing to endure negative cash flow if they need to.
Houston's hotel market got a boost from the Super Bowl and Hurricane Harvey that lasted through March of this year. That probably helped some operators build up their cash reserves and stave off bankruptcy, Bijlani said.
The Houston region added more than 100,000 jobs over the past 12 months, and that's helping Houston's office market after a three-year trend of companies shedding space, CBRE senior vice president at Graham Horton said. Companies are figuring out their future needs as business rises with the price of oil.
The office vacancy rate edged up to 18.5 percent in the third quarter as more sublease space went back to landlords. Sublease space dropped to 9.1 million square feet in the third quarter, down from 9.7 million square feet in the second quarter and the high of 11.3 million square feet two years ago.
Landlords will be offering aggressive concession packages as they look to back-fill these buildings, Horton said, and one year of abated rent is not uncommon on long-term deals.
Companies are looking for amenity-rich environments, and the newest and nicest spaces continue to draw deals.
"Real estate is definitely more than ever in the front and center of discussions around, how do we improve our brand and how do we plan for the future with recruitment and retention?" Horton said.
Houston's retail market is balanced, with rents holding steady at $26.59 per square foot, CBRE senior vice president Mark Witcher said. Occupancy increased slightly to 94.2 percent in the third quarter, as 740,000 square feet of space was completed and demand rose by 315,000 square feet.
Across the Houston region, 4.8 million square feet of retail space is under construction, with much of it concentrated along the Grand Parkway corridor from U.S. 59 North to Sugar Land. Of the 115 projects, 75 percent contain less than 30,000 square feet.
Ross, TJ Maxx, Ulta and Burlington continue to expand in the Houston market along with job and population growth, while H-E-B is expanding its presence inside Loop 610.
The bankruptcy of Sears will take time to work through, and there's no "one size fits all" option for the spaces left behind, Witcher said. Redevelopments will vary depending on the trade area, availability of capital availability and landlord strategy.
Houston's industrial market is being driven by both consumer demand that comes along with strong job growth and the resins market near the Port of Houston, CBRE senior vice president Micheal Palmer said.
The industrial vacancy rate stood at a historically low 5.1 percent in the third quarter. Lease rates are hovering in a tight range, even as property values, construction costs, taxes and labor costs are rising, Palmer said.
On the capital markets side, borrowers are rushing to lock in rates as interest rates rise, CBRE executive vice president Michael Thompson said.
Bridge financing lenders, the predominant lenders for construction financing, are offering competitive pricing as more than 65 such lenders are in the market.
