HOUSTON – (Realty News Report) – Inflation threatens and Houston’s office vacancy is rising to the highest point in years. But Colliers Houston, one of the largest commercial real estate offices in Texas, says there are plenty of reasons for optimism in Houston, which recorded a 5 percent gain in job growth in 2021.
While improvement in Houston’s office market may require patience, other sectors have shown impressive strength, especially industrial real estate and warehouses.
“Our industrial team just crushed it last year,” said Colliers Houston President Patrick Duffy at Colliers Trends 2022 market update event.
The Houston market reported 44.5 million SF of leasing volume in 2021 – an all-time record, Colliers reported. Even while construction was brisk – 17 million SF of space is under construction – the vacancy rate declined. At year end, Houston’s industrial vacancy rate was 7.1 percent, down from 8.5 percent at the end of 2020.
New large-scale distribution buildings and industrial projects continue to be added to the market. Avera and Hines both announced 1 million SF projects along Highway 290 near Waller. Around Thanksgiving, Stream Realty Partners broke ground on six buildings totaling 2.3 million SF at its Empire West Business Park development 30 miles west of Houston in Brookshire.
The surge in e-commerce, with tailwinds from the Covid pandemic, has prompted the construction of huge distribution buildings to enable deliveries to consumers.
Busiest Year Ever at the Port of Houston
The Port of Houston, one of the largest ports in the nation, also generates demand for industrial real estate.
“Houston’s port has seen its busiest year ever. In November, the port surpassed its previous high-water mark of 3,001,164 TEUs (shipping containers) by nearly 16 percent,” said a recent report by Colliers’ Robert L. Alinger, a principal and director with the firm. “Full year estimates are in excess of 3,400,000 TEUs. Material shortages, increased consumer demand, and labor shortages in other port markets are all contributing factors to the record PH growth. Developers continue to seek viable land positions in Houston’s east and southeast submarkets to service this ever-expanding port activity.”
The backup of container ships waiting for weeks to unload off the shores of Los Angeles and Long Beach, Calif. has contributed to the “supply chain crisis” which has resulted in the shortages of parts and consumer goods in the United States.
Another speaker at the Colliers 2022 event, K.C. Conway speculated that the Port of Houston could benefit considerably if logistics shift away from southern California to relocate to Houston’s port.
Conway, a principal with Red Shoe Economics – with a presentation entitled “The Importance of Rail: Rail Connectivity will remake US Supply Chain” – also raised the possibility that significant railroad lines in Texas and in the south, will elevate Houston’s vital role in logistics. The Kansas City Southern railroad, which runs along the east Texas border, is the only direct route to all of Mexico. A number of railroad mergers could be in the offing, Conway said, which could be a game-changer in the logistics arena.
While Houston’s industrial is strong, and multifamily, retail and medical real estate all show health, the office market is at the other end of the spectrum.
The Office Market Condition
The Houston overall office vacancy rate was 23.1 percent in the fourth quarter, up from 21.8 percent a year earlier, Colliers said. Class A office vacancy is around 25 percent, a poor performance by any measure.
“The fourth quarter showed some life with nearly 200,000 SF of net positive absorption, but we expect 2022 to show little expansion in net occupied office product,” Colliers’ Duffy said in his year-end commentary. “High vacancies will continue to press landlord’s toward highly competitive offerings.”
For the year, however, the Houston office market had a net of 1.9 million SF of space go vacant, in what the industry calls “negative absorption,” Colliers said.
The work-from-home trend, which emerged during the pandemic, combined with contraction related to the economic decline has made things difficult in the office leasing sector. Many companies have been hesitant about leasing space and others reduce the size of their offices when they do sign a deal.
But there were a few bright spots in the Houston office market in 2021.
Hines completed its 47-story Texas Tower, giving downtown a new trophy office tower and ornament for the skyline.
And in a major downtown deal that felt like a throwback to the olden days, Shell Oil renewed its 259,000 SF lease in the 1000 Main tower in the biggest CBD renewal of the year.
In The Woodlands, the NYDIG bitcoin company and Lancium Technologies Corp., an energy technology and infrastructure firm, both took full floors of 26,530 SF at The Woodlands Towers at The Waterway, at 9950 Woodloch Forest Drive.
Colliers handles leasing at the 31-story building, formerly an Anadarko Petroleum tower that’s now owned by the Howard Hughes Corp.
“The Woodlands office market continues to have a strong demand as companies look to locate in the growing Woodlands submarket,” said Colliers principal Bob Parsley in a recent interview. “The Woodlands office market vacancy rate was 16 percent in the third quarter of 2021, well under the Houston Metro and Houston CBD average vacancy rate of 26.4 percent.”
Feb. 3, 2022 Realty News Report Copyright 2022.
Image: 9950 Woodloch Forest Tower in The Woodlands. Courtesy: Howard Hughes Corp.
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File: Colliers Houston Commercial Real Estate Update
File: (2) Houston Commercial Real Estate Update. Colliers Trends 2022. Patrick Duffy. K.C. Conway. Bob Parsley.