HOUSTON (NAI Partners) (From Texas A&M Real Estate Center) – March 3, 2020 – Local retail occupancy was 94.3 percent in January, down 10 basis points from this time last year, according to NAI Partners.
Of the 3.2 million sf currently under construction, about 66 percent has been leased.
The market recorded 532,493 sf of leasing activity, 7 percent less than the year-to-date activity from January 2019.
Net absorption was 175,489 sf, with new supply delivering 557,197 sf of which 72 percent is occupied.
The average asking retail rental rate was $17.92 per sf on a triple net basis, up 1.4 percent.
REAL ESTATE CENTER Texas A&M (Luis Torres, Wesley Miller, Paige Silva, and Griffin Carter) – Feb 14, 2020
Texas Population grew by 367,215 or 1.3% compared to 0.5% for the rest of the nation. Texas was 1st in the country in terms of absolute change.
Texas Non-Farm Employment added 309,700 jobs exceeding national groth by a full % point at 2.5%.
Center predicts decelerating job growth due to a slower national and world wide economy and a stagnant energy sector.
Texas commodity exports improved 5.5% after adjusting for inflation, setting new annual record and accounting for a fifth of the nation’s exports for the 1st time in series history.
West Texas Intermediate crude oil spot price dropped $8 from 2018 to just shy of $57 per barrel due to increased worldwide oil production and US-China tariff tensions.
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US (CoStar) – February 13, 2020 –Foreign investment in U.S. real estate dropped significantly last year, falling to its lowest level in five years.
Foreign investors participated in $37.8 billion in deals in the U.S. last year, down 42% from 2018, according to CoStar data. Foreign investor purchases accounted for just 5.4% of last year’s total volume — that is off from highs of 11.4% in 2014 and 2015.
The drop-off comes as foreign investors sat on the sideline for almost half the year due to the prospects of rising costs for capital and properties in the U.S. In addition, the flow of money from Asia shifted from major buyers in Singapore and China to emerging buyers from South Korea, Japan and Hong Kong.
Investors from Singapore, which had acquired more than $5 billion of U.S. properties in 2017 and again in 2018, completed only $1.87 billion in buys last year. Moreover, Singapore-based Global Logistics Properties sold off its U.S. industrial portfolio to U.S.-based Blackstone Group for $18.2 billion, making Singapore the largest net seller of U.S. properties last year.
Investments from U.K.-based buyers shrank both here and across the pond in their home market, while U.S. investors stepped up both here and in the U.K. In addition, capital from Germany continued to flow to both markets, with investors from Germany being the largest net buyer of U.S. properties.
Richard Barkham, global chief economist and head of Americas research for CBRE, said in an interview with CoStar that there were three reasons for the drop in U.S. activity by global investors.
The first has to do with what happened in 2018. The previous year included a couple blockbuster deals involving giant retail-oriented real estate investment trusts. Unibail-Rodamco SE, Europe’s largest commercial property owner, bought Westfield Corp. for about $15.8 billion in the biggest property acquisition since 2013. Westfield was the 12th largest U.S. retail property owner at the time. In addition, Toronto-based Brookfield Asset Management paid $15 billion to acquire another retail giant GGP.
Big deals like that didn’t happen in 2019.
Also, 2019 kicked off with the markets expecting additional interest rate boosts from the Federal Reserve. The prospects of higher interest rates coincided with the value of the U.S. dollar rising. The combination would have driven up acquisition costs for foreign investors, which kept them on the sidelines for the first half of last year, Barkham said.
However, by mid-year 2019, the Federal Reserve reversed course and started lowering interest rates. That prompted a return of foreign capital in the second half of the year with volume in the second half 24% higher than in the first half.
Thirdly, Barkham said China’s decision to place restrictions on commercial real estate investments in the U.S. and other markets meant one of the largest players in the past had largely left the field.
In late 2017, China’s government announced efforts to restrict outbound investments in foreign real estate and redirected investors to different world destinations in Europe and Asia.
With no signs on the horizon that the Federal Reserve could start raising interest rates again, “we expect to see Asian capital return to the U.S. this year,” Barkham said, particularly from investors in such markets as Singapore, Hong Kong and South Korea.
By dollar volume, Canadian firms were both the largest buyers and sellers of U.S. properties among foreign investors. But overall, their volume of activity was relatively flat as there was a lot of profit taking occurring last year, according to Amy Erixon, principal of and managing director for Investments of Canada-based Avison Young.
“Some of the big plans like [Public Sector Pension Investment Board] were harvesting some gains because they went early into New York and tripled their money. So they sold and rotated into other property types,” Erixon said.
HOUSTON (REBusiness Online) – January 10, 2020 – At the end of the year, a record-high 19.1 million sf of industrial space across 112 buildings was under construction in the metro, according to Avison Young. Year-end vacancy stood at 6 percent, and two million sf was absorbed in the fourth quarter.
Four of the five largest projects are build-to-suit developments totaling almost 3.9 million sf.
The largest of those, Medline’s 1.3 million-sf project off I-10 in Katy, broke ground during the fourth quarter.
HOUSTON (CoStar-Justin Boyar) – December 23, 2019 – In Houston’s Galleria-Uptown submarket, more than 80% of office net absorption since 2010 occurred in five-star product, the highest classification of building. The area’s four five-star rated buildings were 7% vacant as of last quarter, versus 19% vacancy for the submarket’s 31 four-star buildings.
This signifies potentially pent-up demand for five-star space in the submarket, although developers could face lower rent growth than in other major markets in the near future, owing to the nation’s highest vacancy rate throughout Houston.
This should come as no surprise, as the Galleria-Uptown area, which is located at the crossroads of the River Oaks, Tanglewood and Memorial residential areas, boasts of some of the strongest demographics and highest grossing retail stores in the country. The Neiman Marcus and Saks Fifth Avenue department stores, for example, each rank second in terms of revenue after their flagship stores in Dallas and New York, respectively.
The mentality of office tenants here is that they want to be located in the highest quality space that the submarket can provide while fitting within their budget. And if the Galleria-Uptown submarket becomes too pricey for them, or the highest-end options are too few, they leave.
Air Liquide, for example, decided to relocate to brand-new office space slightly west in MetroNational’s Memorial City development in the Katy Freeway East submarket. And Marathon Oil recently decided to move out of its namesake legacy building at 5555 San Felipe to a new build-to-suit campus at CityCentre in Katy Freeway East.
Today, high-end four-star office space in Houston and in several major U.S. markets faces an existential issue of renovating and adding new amenities to compete with newer space.
Among older generation four-star space in the Galleria-Uptown submarket, Four Oaks Place, owned by Allianz and managed by Transwestern, and Post Oak Central, both owned and managed by CPPIB subsidiary Parkway, have recently undergone major renovations. Four Oaks Place, however, has recently seen some large subleases in former BHP space, occasionally at the expense of Post Oak Central.
Additionally, the Galleria’s main promenade, Post Oak Boulevard, is undergoing a nearly $200 million renovation to add a bus rapid transit line and improve its walkable appeal, which should deliver in phases over the next few years.
HOUSTON (Greater Houston Partnership via Jeff Morgan-Wells Fargo) – December 16, 2019 – The Partnership’s forecast calls for the region to create 42,300 jobs in ’20. Growth in ’20 in Houston will occur out-side of energy, especially in sectors tied to population growth, the U.S. economy, and global trade.
- Health care, government, accommodation and food services, construction and administrative support services will turn in the strongest performances.
- Professional scientific and technical services and transportation and warehousing will see moderate gains.
- Other services, education services, finance and insurance real estate and arts, entertainment and recreation will log marginal growth.
- Manufacturing and wholesale trade will be flat to slightly up.
- Energy, retail and information will contract.
With unemployment at 3.6 percent, the U.S. labor market is the tightest it’s been in 50 years. The tight labor market has finally begun to affect wages and consumer optimism. The U.S. Bureau of Labor Statistics reports that the average hourly wage was 3.0 percent higher in October ’19 than a year prior. That’s affected consumer behavior
The outlook for global growth looks better today than it did a year ago. The Organisation for Economic Co-operation and Development (OECD) expects the global economy to grow 3.0 percent in ’20, marginally above the 2.9 percent this year, and decidedly not the crash many economists predicted earlier this year.
Over the past 10 years, more than $150 billion in construction contracts have been awarded in the Houston region. This activity has added 43.8 million square feet (msf) of office space, 88.4 msf of warehouse/distribution space, 43.4 msf of retail space, about 300,000 single-family homes, nearly 125,000 multi-family units, and more than $60 billion in new chemical plants and refinery upgrades to Houston’s property inventory.
Weakness in oil and gas continues to weigh on Houston’s manufacturing sector. The Partnership estimates that 25 to 33 percent of the region’s manufacturing jobs are tied to oil and gas extraction.That’s down from the height of the fracking boom, when as many as 40 percent supported upstream energy.
Exploration activity, already down in ’19, will continue to contract in ’20. Though few firms have finalized their exploration budgets for next year, cuts of 10 to 20 percent should be expected. EIA expects oil prices to slip in ’20, putting an even tighter squeeze on the cash flows of many firms. The industry will continue to see a high number of bankruptcy filings.
HOUSTON – (Texas A&M Real Estate Center) – November 22, 2019 -The growing average asking rate of renting local retail space persists at a record high of $18.67 per sf on a triple net basis, up 7.3 percent from last year, according to NAI Partners.
Local retail occupancy is at 94.4 percent year to date through October, down ten basis points from this time last year.
The market has recorded 5.7 million sf of leasing activity, slightly outpacing the year-to-date activity from one year ago.
Net absorption stood at 4.3 million sf, with new supply delivering 4.4 million sf to the market this year, of which 72 percent is occupied.
HOUSTON (BISNOW Houston Kyle Hagerty) – October 22, 2019 – As the Houston Astros kick off the World Series at Minute Maid Park and the Houston Rockets prepare for the first game of the 2019-20 season just blocks away at Toyota Center, a new neighbor is entering the area with a $55M purchase of 3.5 acres.
Skanska purchased four parcels, including one full city block, altogether totaling roughly 152K SF adjacent to the award-winning Discovery Green park, boarded by the Houston Rockets’ Toyota Center, the George R. Brown Convention Center and the Houston Astros’ Minute Maid Park. Skanska’s plan is to develop a mix of office, multifamily and retail for the surrounding community. Skanska opened Bank of America Tower in Downtown early this year, where the bank houses 600 employees in a 205K SF space.
Skanska confirmed that the city block it purchased was the surface parking lot bordered by Dallas, Lamar, La Branch and Austin streets, between the Four Seasons and Embassy Suites, with three other adjacent surface parking lots included in the deal. Those four properties were all owned by MIPS Investments and MIPS Parking, according to the Harris County Appraisal District, which values the combined parcels at $30.6M. Skanska hasn’t announced any specific plans or a development timeline for the site yet.
“We are excited about this next endeavor for Skanska Commercial Development in Houston. For this project, Skanska will tap our global expertise in multi-family, office and retail development as we consider the best uses for these sites advantageously located in the city’s front yard at Discovery Green,” Skanska Executive Vice President Matt Damorsky said in a statement to Bisnow. “These prime acquisitions include a full city block, which will be transformed into sustainable, high-quality space in the urban core. We look forward to advancing the master planning process so we can begin creating this dynamic community reflecting the vibrant cultural fabric of Houston.”
Skanska paid $55M, which comes out to approximately $361 per SF, a hefty price for downtown real estate. Just five years ago, land in Downtown Houston was topping out at $275 per SF, according to CBRE research. “When Hess Tower sold, it sold for the highest square foot price of any building in the city of Houston at the time, and we took complete credit for that,” Discovery Green President and Park Director Barry Mandel joked at Bisnow Houston’s Future of Downtown event earlier this month.
When it sold in 2011, the 844K SF Hess Tower garnered a reported $523.81 per SF. The costly real estate is likely one of the best undeveloped locations in the entire city. Sports are a major draw for the area and a major factor in the land’s value. Skanska’s deal is a continuation of more than two decades of concentrated efforts to turn the area into the buzzing heart of Houston. “You can really feel the difference in where we are in Downtown right now,” Houston First President Bob Eury said at the event. “It’s all about living, eating and drinking, including going to playoffs, championships and World Series in Downtown.”
That’s no accident. In the 1990s, city officials made monumental efforts to bring the city’s beloved sports franchises into the central business district. It started with the Astros. In 1996 Harris County voters narrowly approved a bond to fund a new ballpark at the historic Union Station, bringing the Astros from the world-famous Astrodome southwest of the city. With the help of a new Sports Authority to finance the project, signed into law by then-Gov. George W. Bush, work began on what would eventually be known as Minute Maid Park.