When it comes to the highs and lows of 2017, Preston Young called Houston’s commercial real estate market “a tale of two cities.”
Young, who serves as regional managing partner for Dallas-based Stream Realty Partners, noted the contrasting storylines in Houston’s office leasing market, which is still struggling under the weight of several million square feet of sublease space, and the office investment market, which saw a tenfold increase in deal volume compared to 2016. Houston’s office investment market saw $4 billion in assets trade hands in 2017, compared to $400 million in 2016.
With industrial and retail ending 2017 on strong successes, Young chatted with the Houston Business Journal about where office demand is picking up, how e-commerce will continue to impact industrial and retail in 2018, and more.
How does Houston’s broader commercial real estate market look going into 2018?
Industrial, retail and health care are going great, and then you have the red-headed stepchild that is office. … (But), for the first time since 2014, we now have some positive things that we can talk about on a submarket-by-submarket basis. You’re going to have some submarkets outperforming others in a pretty significant way.
What office submarkets are performing well?
The demand, obviously, has been very sporadic, but The Woodlands has begun to outpace the rest of the general market. … Sugar Land has been the only submarket that has seen occupancy growth since 2014.
Is there one office deal that defines the 2017 market?
Not one particular deal, but … the number of deals we’ve done in 2017 is up 30 percent year-over-year, and we think that bodes well going into 2018. On average, the term length of each deal we did in 2017 was longer, and the lease size was larger.
Tell me about investor interest in Houston in 2018.
Buyers and investors want to have a good story on why an opportunity in Houston makes sense to them. In 2017, you’ve seen a very chunky acquisition process – Houston Center, Greenway Plaza – you’ve seen these really large portfolio buildings trading all at once. In 2018, you’ll see the volume of deals increase, but you may actually see a down year in terms of the dollar value of those deals.
How do you see Houston retail evolving as e-commerce continues to present challenges?
We’re going to see retail continue to make strong strides in urban infill locations – where people are buying experiences. You’re probably not going to see a whole lot of power center development in 2018 due to e-commerce competition. Lots of people are sitting back and watching and seeing which retailers (fail) versus which ones embrace e-commerce and actually grow because of it.
How much more demand do you think Houston’s industrial market can absorb?
E-commerce demand spills over into industrial. We’ve obviously seen industrial be a big beneficiary of e-commerce. As a result, there’s obviously a lot of speculation of what that demand could constitute in 2018 and beyond. We’ve seen e-commerce trends well underway (around the nation) and you’re seeing those first movers in e-commerce staking their claim in Houston in 2018.
This interview has been edited for length and clarity.
By: Cara Smith
SOURCE: Houston Business Journal