DOWNTOWN HOUSTON (Central Houston) – May 30, 2019 – Downtown concluded the first quarter of 2019 with sound fundamentals, and a slew
of office leases, renovations, and new construction activity, thanks to improving industry trends.
Rebounding from its plunge at the end of last year, WTI crude increased steadily throughout the first quarter, settling at $61 per barrel at the end of March (a 40 percent increase over a 3-month period). Despite looming uncertainty as geopolitical tensions weigh on global and national demand outlook, the Downtown and Houston economy continue to experience robust labor market and economic growth, albeit lower than initially foretasted. Houston unemployment is at its lowest in two decades (3.7 percent in March 2019), supported by strong manufacturing employment.
Stable oil prices are likely to translate to increased production, but less so to energy sector job growth, due to the growing technological efficiencies in the industry. In the midst of this, the Downtown market is bustling, as developers and landlords continue to implement innovative offerings and experiences for employees, residents and visitors. Cranes continue to dot the Downtown skyline, as a plethora of new and redevelopment projects are underway in all of Downtown’s major sub-markets—office, multifamily, hospitality and retail.
Downtown’s Residential sub-market is thriving and continues to attract investment and a growing number of residents, given its track record as one of the fastest growing residential neighborhoods in the region. As the demand for Downtown units has increased, evidenced by an 86.8 percent occupancy rate this quarter, so has the supply. Hines has begun construction on Houston’s tallest residential tower—The Preston—slated for delivery in 2022. This is again indicative of the DLI initiative’s success in kick starting an organic response to what was evidently a huge demand for Downtown living. The sub-market has grown to close to 6,100 residential units, up from about 2,500 in 2013; Downtown now houses over 9,000 residents.
The Downtown Office market has been extremely active since the year began, with major lease deals, renovations, and new construction activity. Key fundamentals indicate that the Downtown’s office market delivered strong performance in the first quarter and continues to show signs of improvement. Between January and March alone, Downtown recorded close to 774,000-SF in leases,
close to 50 percent (375,581-SF) were renewals, reiterating tenant’s confidence in the sub-market; BG Group Place (811 Main) is 93.6 percent leased; most of the sublease space in One Shell Plaza (910 Louisiana) has been leased; 609 Main at Texas is over 80 percent leased, after securing several leases this quarter. Co-working trends are also contributing to absorption, with co-working and
innovation-related leases accounting for over 100,000-SF of leases in the first quarter alone. Overall vacancy however remains high 20.4 percent in Q1 2019, a slight increase from 19.7 percent in Q4 2018, all of which Class A buildings accounted for. This is underpinned by growing inventory from the two office towers under construction accompanied by footprint shrinkage.
Downtown’s Retail market is constantly evolving including the culinary scene which continues to grab local and national attention. Narrative around this year’s retail buzzword, ‘Food Halls,’ continues to focus on Downtown, as highlighted in CNN’s February publication, ”9 Great Reasons To Visit Houston In 2019.“ Complementing its growing national recognition, Downtown’s newest food hall, Finn Hall, placed 4th in the top ten winners for 2019 USA Today’s “10 Best Readers Choice Travel Awards’ Best New Food Hall”. However, Downtown’s Finn Hall in The Jones on Main, and its soon-to-be counterparts, Bravery Chef Hall in Hines’ Aris residential tower and Under-story at Skanska’s new office tower, Capitol Tower, play a bigger role than meeting the demand for ‘approachable’ culinary offerings; they are also making both the office and residential buildings they are housed in more attractive to tenants, as Downtown emerges as a true live-work-play destination. Downtown had five new retail deliveries in the first quarter; over 28 new retailers are coming soon or planned. (Bisnow, HBJ, Chronicle Bisnow, HBJ, Bisnow, RNR, Culturemap, RNR)
As with retail, Downtown’s Hospitality, cultural and entertainment sectors continue to receive national attention. In its February publication “9 Great Reasons To Visit Houston In 2019,” CNN not only points to Downtown as having most of the top travel attractions in Houston, but recommends Downtown as one of the three main neighborhoods of choice for accommodation, for travelers to have the best access to the city’s highlights. Brookfield’s C. Baldwin, Curio Collection by Hilton, the rebranded 354-room independent hotel (formerly DoubleTree Hotel), is on track for its grand-opening on October 10, and will formally adopt its new name on June 2. The renovated hotel will feature ballrooms named after influential Houston women, and a new signature Italian restaurant Rosalie, by celebrity chef, Chris Constantino. Hilton Americas-Houston Hotel, the city’s largest convention center hotel at 1600 Lamar, will be undergoing an extensive $37 million renovation. Led by Gensler, each of its 1,200+ rooms will receive $31,000 in upgrades, a new color and design scheme, new artwork from 11 local artists and in-suite technology. Construction will start in the second quarter and be completed in phases throughout the year to limit hotel disruption. Downtown’s Hotel Alessandra took the number-two spot on Interior Design magazine’s national best design list for “cool and captivating lobbies.” Part of the Valencia brand, Alessandra “pairs traditional glamour with modern sophistication.” (Culturemap)