Houston CRE Market Reports | Q4 2016

by CoyDavidson on February 6, 2017

Stronger Oil Prices and the Trump Administration Could Be Very Good for the Houston Economy

The worst of the oil downturn appears to have passed and job growth is poised to pick back up in Houston in 2017. The office market has been the hardest hit by lower oil prices while the retail and industrial sectors have remained quite resilient. Some have predicted that with the fall in oil prices, Houston would experience a sharp economic decline as the energy sector has lost some 67,000 jobs but the economy has not collapsed. Below are our year-end market reports for the Office, Industrial and Retail sectors.

OFFICE

After several challenging years, Houston’s office market saw some improvement over the quarter. The market will most likely remain relatively flat, coasting through 2017. The citywide vacancy rate increased by only 40 basis points between quarters, and absorption, although negative, was only a third of the previous quarter’s total. Q4 2016 witnessed several energy companies remove available sublease space as they began to shift out of the contraction mode and begin looking forward again. Although leasing activity remained lower than normal, deals are getting done and some of those even include pre-leasing of proposed developments. Houston’s office market posted 0.1 million SF of negative net absorption during the fourth quarter, an improvement from the 0.3 million SF of negative net absorption posted in the previous quarter. Houston’s citywide office vacancy rate rose significantly on an annual basis, increasing by 220 basis points from 15.3% to 17.5% in Q4 2015. As stated earlier, the vacancy rate rose by only 40 basis points over the quarter, much less than in previous quarterly comparisons during 2015 and 2016. No new buildings delivered during Q4, however, 1.8 million SF of the 3.1 million SF in the construction pipeline is scheduled to deliver in Q1 2017. There have been several recent press announcements of tenants pre-leasing space in proposed buildings… read the full report.

RETAIL

Houston’s retail market ends 2016 on a positive note and moves into 2017 as the healthiest commercial real estate sector in the metro. The average vacancy rate remained unchanged at 5.8% on an annual basis and only increased 10 basis point on a quarterly basis from 5.7% in Q3 2016. Although Houston lost about 80,000 high income jobs between 2014 and 2016, retail market indicators show no signs of a struggling economy. According to our data provider, CoStar Property, Houston ranks fourth nationally in construction activity. Approximately 74.6% of the retail space under construction at the close of Q4 2016 is pre-leased. Despite the 1.3M SF of new inventory delivered in Q4 2016, Houston’s average retail vacancy rate remains low at 5.8%, only 10 basis points higher than the 5.7% recorded in the previous quarter. Although Houston lost about 80,000 high income jobs between 2014 and 2016, retail market indicators show no signs of a struggling economy. According to our data provider, CoStar Property, Houston ranks fourth nationally in construction activity. Approximately 74.6% of the retail space under construction at the close of Q4 2016 is pre-leased. Despite the 1.3M SF of new inventory delivered in Q4 2016, Houston’s average retail vacancy rate… read the full report.

INDUSTRIAL

During the final quarter of 2016, 1.9 million SF of Houston’s industrial inventory was absorbed, substantially less than the 6.3 million SF absorbed in the third quarter. However, 3.9 million SF of the space that was absorbed in the previous quarter was a result of one tenant, Daiken occupying a massive new facility. Industrial leasing activity decreased between quarters, dropping from 4.3 million SF to 3.2 million SF. The average vacancy rate increased 10 basis points over the quarter from 5.5% to 5.6%. About 70.0% of the 2.3 million SF of new space delivered in Q4 2016 was pre-leased, and 78.0% of the 5.2 million SF currently under construction is pre-leased. More than 2.4 million SF of the 5.2 million SF currently under construction is located in the East-Southeast Far submarket, where the Houston Ship Channel and the Port of Houston are located. The average citywide quoted industrial rental rate increased 3.3% on a quarterly basis from… read the full report.

Healthcare

Houston’s healthcare industry remains strong and continues to be a major driver of development and employment. More than 325,000 Houstonians work in healthcare, the city’s second largest employment sector.From December ’14 to October ’16, a period when mining and logging lost nearly 25,000 jobs due to the energy downturn, health care created nearly 23,000 new jobs. Houston can expect to see more health care growth and more jobs, according to the Greater Houston Partnership’s 2017 Houston Employment Forecast… read the full report

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