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Future Trends in Houston Real Estate: Q&A with Mark Sikes of Deal Sikes & Associates

Mark Sikes

Mark Sikes, Deal Sikes & Associates

Houston economy is moving toward a recovery as oil prices rise and activity ticks up in the oil fields. The city’s continued population growth creates traffic issues and pressures city leaders to consider public transit solutions. Many institutional investors spurn the Houston office market, which faces rising vacancy rates. Houston’s single-family market shows remarkable strength while upscale multifamily struggles. Real estate appraiser and consultant Mark O. Sikes follows major deals, trends and public policy in Houston and the other large markets in Texas. Sikes, a principal in the Deal Sikes & Associates valuation and consulting firm, has evaluated thousands of commercial and residential properties, urban and rural land, hotels and REIT portfolios. Sikes has handled hundreds of eminent domain cases as roads, rails and pipelines have expanded across the state. As 2017 began, Realty News Report interviewed Sikes about his expectations for Houston in the year ahead.

Q: What are some of the new trends that are emerging in Houston real estate?

Sikes:  Mixed-use projects are becoming commonplace. We’ve had the Galleria, of course, and City Centre in west Houston. But Houston developers have been creating a lot of dense, urban projects with multifamily, retail and office space, and sometimes hotels. You’ll be seeing more apartments stacked over grocery stores. In a similar vein, a few Houston developers are creating more two-story retail buildings in the Inner Loop. Houston is becoming a more urban place. The new Buffalo Heights, being developed by Midway and Lionstone Investments on Washington Avenue, is a perfect example of this urbanization.  Buffalo Heights will include a mid-rise building with office space and apartments over a grocery store.

Q: What impactful public projects are looming over Houston?

Sikes: Uptown Houston has begun the widening and beautification of Post Oak Boulevard into a world-class corridor with a responsible public transit system. Once complete the benefits will be far-reaching and will elevate the district for future generations.  This is a game changing public improvement project.

In the Central Business District, the re-routing of Interstate 45 will be transformative for downtown and its institutional-grade properties. If this TxDOT proposal moves forward, it’s going to change Midtown and the east side of downtown, as well. Among freeway projects, the expansion of Highway 290 in the northwest is still under construction and more lanes are being added to Highway 288. The future growth patterns of the city hinge on these transportation expansion projects.

Q: There have been a lot of strong reports about the shopping center market. What’s your opinion?

Sikes:  Houston’s retail center sector has benefitted from the lowest vacancy rates in a decade.  There’s a lot of construction in the suburbs as the retailers continue to play catch-up to the population boom and suburban single-family building.  These great fundamentals have supported some impressive valuations for Houston area retail centers. Grocery-anchored retail centers in Houston, Texas – that may be as good as it gets right now. Retail will continue to be a hot sector in 2017.

Q: What about Houston office buildings?

Sikes: Vacancies are rising and landlords are making concessions to secure leases. We are not seeing a lot of office buildings trade hands in this market. But valuations could be disappointing for some sellers when normal conditions prevail again in Houston’s office market. A large supply of sublease space flooded the market in 2016, but progress is being made in leasing it up.

Q: Do you have any thoughts about medical real estate? There seems to be a lot of construction in Houston.

Sikes: The aging population creates more and more demand for healthcare and hospitals.  The incoming Trump administration in Washington promises to make a major overhaul to the Affordable Care Act and it’s too soon to know how these changes will impact the healthcare industry. Houston’s population continues to expand and we see more demand for suburban medical office buildings and site where hospitals and healthcare buildings can be constructed. And, yes, there is a tremendous amount of medical construction right now in southeast Texas. In a related trend, we are seeing more demand for seniors housing in Houston suburbs, as well.

Q: What lies ahead for Houston real estate in 2017?

Sikes: Deal Sikes & Associates is expecting a fairly good year in 2017.  The energy industry appears to have stabilized. Houston’s job growth is expected to be slightly better. The overhang of empty office space cannot be ignored, but at least this construction cycle has come to a halt.  Houston’s residential sector is performing well. It appears that many of the soft spots in Houston’s market will be firming in 2017 and overall, we are heading towards a strong 2018.

Jan. 3, 2017 Realty News Report Copyright 2017

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