Houston CRE Market Reports | Q3 2017

by CoyDavidson on November 3, 2017

Harvey Slows Houston Recovery in Commercial Real Estate Sector

Hurricane Harvey had a negative impact on Houston’s economic activity at the end of August and through most of September 2017. Downward revisions to payroll employment that came with the September data resulted in Houston growing at an annual rate of 1.9 percent from December 2016 to August 2017, down from the 2.1 percent reported last month. Houston created 53,500 jobs in the 12 months ending August ’17. Moody’s Analytics estimates Harvey’s losses for the U.S. at $97 billion, a revision from the previously reported $108 billion. The new estimate includes $87 billion in property losses and $10 billion in lost economic output. Most of the losses will be recouped in October as employees displaced by Harvey return to work and hiring for repair and reconstruction begins. By November, the region’s employment should surpass pre-Harvey employment levels.

Despite the economic challenges as a result of Hurricane Harvey, the mood of Houstonians is upbeat particularly since the Houston Astros just won their first world series title in franchise history.

Here are the Colliers International | Houston Third Quarter – 2017 Market Reports for the office, industrial, and retail sector.

OFFICE

Houston’s office market vacancy rate continues to struggle amid $50 crude prices
Houston’s office market continues to struggle as U.S. crude prices waiver around $50 per barrel. According to the U.S. Energy Information Administration (EIA), they are expected to stay in this range through 2018. With no indication that prices will rise substantially over the next few years, vacant office space placed on the market by firms in the energy industry will take longer to absorb. Recent news articles indicate that some of the large energy giants reported profits in the second quarter. However, profits were largely driven by lean budgets and staff reductions.Fortunately, most of the proposed projects that were in the construction pipeline when the oil slump hit were put on hold. Companies such as Bank of America, American Bureau of Shipping and HP, have signed leases in proposed buildings that have either recently begun construction or will begin in the very near future. Once these projects deliver, those companies will vacate their existing space…read the full article

INDUSTRIAL

Houston’s industrial market sees growth in distribution space and logistic hubs
During the third quarter of 2017, 3.0M SF of Houston’s industrial inventory was absorbed, pushing the 2017 year-to-date total to 6.2M SF. Although Houston’s economy slowed significantly in 2015 and remained weak in 2016, the demand for consumer products continues to spur growth in the industrial sector. Companies like Amazon, DHL and FedEx are just some of the tenants in the market leasing or building distribution and logistics hubs. Companies such as Ikea, Daikin, Lowes and Home Depot that manufacture and/or distribute buildings supplies for new developments, as well as now for rebuilding Harvey impacted properties, have expanded their footprint in the market as well. The average vacancy rate has remained low for several years now, hovering between 5.5% and 5.3%. Over the quarter, the average vacancy rate decreased marginally from 5.5% to 5.4%. A little over 2.5M SF of new product delivered during the third quarter bringing the 2017 new inventory total to over 7.6M SF. Currently, 5.3M SF of industrial space is under construction of which 30.7% is pre-leased… read the full article

RETAIL

Houston’s retail market sees a slight uptick in vacancy in the third quarter
Houston’s retail market activity slowed during the third quarter but still remains healthy despite a decrease in absorption and a slight uptick in vacancy. In August 2017, Houston faced one of the worst natural disasters in history. Hurricane Harvey, a Category 4 hurricane, slammed the Texas coast and dumped over 50 inches of rain in parts of Houston. The event caused widespread flooding, destroying homes, businesses and infrastructure. The retail sector saw supply chain interruptions which halted distribution logistics for a week or more. Ships carrying consumer goods were delayed due to ports shutting down and local distribution facilities could not get products delivered to consumers. A report by First Data shows that retail spending increased the week before the hurricane, but plummeted 58.7% week-over-week and 43.7% year-over-year in Houston and its surrounding areas at the peak of the hurricane. According to the Department of Commerce, September saw a slight uptick in consumer spending… read the full article

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