Houston is in transition. Future growth and heavy traffic demand attention from the public sector and civic leaders. Meanwhile, the Houston’s real estate markets normalize after a robust run since recovering from the Great Recession. With the energy industry in a slowdown, some say Houston’s office and multifamily sectors are overbuilt. Real estate appraiser and consultant Mark O. Sikes constantly keeps his finger on the pulse of Houston, as well as the major markets in Texas. Sikes, a principal in the Deal Sikes & Associates valuation and consulting firm, has evaluated office buildings, retail centers, hotels, residential developments and REIT portfolios. Sikes has handled hundreds of eminent domain cases as roadways have expanded across the state. Realty News Report caught up with Sikes to capture his opinions on the Houston real estate market.
Realty News Report: What’s the biggest game-changer in Houston real estate right now?
Sikes: The expansion of the Grand Parkway in north and northwest Houston is certainly an important factor for the future growth of the metropolitan area. Numerous developers are taking positions along the Grand Parkway, preparing for the next growth cycle when they can develop master planned communities or retail. In downtown, TXDOT is planning to change freeway routes, including the demolition of the Pierce Elevated. The oil industry is impacting Houston, of course. But the new infrastructure will have a long-term impact on the city.
Realty News Report: What about the high-speed bullet train from Houston to Dallas?
Sikes: The high-speed train, although it’s years away, is definitely important. Decisions about the routing and terminus points are critical and our firm is evaluating the implications the train will have on real estate values and eminent domain matters.
Realty News Report: Occupancy rates are down in Houston’s office and apartment markets. And at the same time a number of projects are under construction. Have we reached the bottom of this downturn?
Sikes: We concur that Houston is on the brink of overbuilding is some areas. The supply of new multifamily, with some 100 apartment communities under construction, has raised some eyebrows. But we believe that the apartment construction spigot will be turned off and the multifamily market can regain its footing in a couple of years.
Realty News Report: And the office market? Do you expect Houston office buildings to maintain their values this year?
Sikes: Yes, generally speaking.
Realty News Report: What about the other sectors?
Sikes: Retail centers are in demand and there has been no overbuilding. Valuations are impressive in the retail sector. The industrial market is also strong.
Realty News Report: What about residential?
Sikes: Our firm focuses of commercial real estate. But the supply of single-family homes is tight and builders appear to be curtailing their activity somewhat. With positive job growth, we are expecting no major decline in home prices. In the short term, home building is moderating and it remains to be seen how this will impact the land market. An extended period of low oil prices and weakening job growth could dampen the demand for suburban land for residential development.
Realty News Report: Are there any major changes coming to the Houston market, in terms of valuation and pricing?
Sikes: In recent years, prices have skyrocketed for Inner Loop land, the sites where multifamily projects or retail could be built. The demand for these properties has cooled and prices are not rising rapidly now. This includes the obsolete retail centers, garden apartments and warehouses that were commonly bought and demolished to make way for new construction. Pricing for retail projects will continue to advance because that market is very strong, and in fact, retail is underbuilt.
Realty News Report: Anything else you would like to add?
Sikes: This year is a wait-and-see year. A lot of questions hover over the market. Will oil prices stabilize? Can Houston continue to have a net-gain of job growth? And we need to see how this new construction is absorbed. We should be getting some clarity on these issues by the third quarter, or certainly by year-end. Then, in 2017 the market will either be in recovery or working its way through a more prolonged downturn. Overall, we remain fairly positive about this market and we are looking for an uptick later this year.