REDNews September 2012 : Page 34
: SOUTHEAST TEX AS The Word is Out About Hou st on’ s Ho t M arket Th e Houston commercial real estate market is in excellent condition and investors and lenders are taking notice, according to industry veterans at CBRE Group. “I am very bullish on this marketplace,” said John Fenoglio, executive vice president of debt and equity for CBRE in Houston. “We are one of the strongest markets in the country right now. “ buildings will make leasing space more costly for tenants. Ralph Bivens RealtyNewsReport.com Houston Contributing Writer Fenoglio has been around Houston real estate for decades. In 1982, he co-founded Holliday Fenoglio, which grew to become the largest commercial mortgage banking fi rm in the United States. “I think you’ll see signifi cant increases in rents in the next year,” Branca said. In downtown, Class A rental rates jumped to $40.10 per square foot. Class A rates in the Energy Corridor have risen almost $2 per square foot over the last year. CBRE reported the citywide overall average rental rate hit $23.31 per square foot in the second quarter, up from $23.23 in the fi rst quarter. Concessions from landlords are withering away. Th e Woodlands is exceptionally tight, with only 6 percent vacancy overall in its 6 million-square-foot submarket. Exxon Mobil is constructing a 3 million-square-foot campus just south of Th e Woodlands, injecting a lot of momentum into the north submarket. Th e largest lease in the second quarter, CBRE said, was the Philips 66 lease of 209,482 square feet in the 3010 Briarpark building in the Energy Corridor. Th e second largest was Chevron’s renewal and expansion to 164,000 square feet in the 1600 Smith building downtown. Multi-Family Houston’s apartment market surged in the second quarter, boosted by the city’s expanding economy which has created over 80,000 new jobs in the last year. Apartment occupancy was up sharply, rising to 89.4 percent in the second quarter of 2012, from 88.4 percent in the fi rst quarter, CBRE reported. “Leasing is exceptional,” said Ryan Epstein, multi-family specialist for CBRE. “New projects fi ll up fast, unlike the past, when new projects could take several months or a year to lease-up,” Epstein said. Apartment leasing agents are outpacing construction crews and new apartment buildings often open fully leased, with signed tenants waiting to move in. “It’s a very good time to be a landlord,” Epstein said. CBRE reports 9,478 units are under construction in the Houston area currently. Many of the projects are high-rise or mid-rise units. Higher prices for inner loop land dictate the need to construct dense projects with more units per acre. “Th e Houston real estate market is one of the hottest spots in the nation and multi-family is one of the hottest sectors,” Epstein said. “Th e city’s reputation is excellent with investors currently,” he said. “Th e outside world looks at Houston in a very favorable light.” Ralph Bivins, former president of the National Association of Real Estate Editors, is founding editor of RealtyNewsReport.com. “I am very bullish on this marketplace... We are one of the strongest markets in the country right now” John Fenoglio Fenoglio joined CBRE earlier this year and he was a featured speaker at the CBRE second quarter press luncheon recently. “Th e fundamentals of the Houston market are excellent; new development has been restrained and wildly speculative projects are not being built,” Fenoglio said. Lenders have recently become more willing to fi nance commercial real estate deals in Houston, according to Fenoglio, although the fi nancing is underwritten with sound fundamentals. “Only the best projects will get built. It’s a very disciplined marketplace,” Fenoglio said. “Th ere’s nothing crazy going on, which gives me a lot of confi dence.” CBRE announced at the press luncheon that second quarter offi ce vacancy in Houston dropped to 14.83 percent, down 69 basis points from the end of the fi rst quarter. Net absorption for the quarter was a whopping 1 million square feet, an impressive number compared to the leasing activity in recent years. Th e vacancy rate for Class A space fell below 10 percent in several submarkets, with notable improvement in West Houston. West Houston alone, boosted by signifi cant leasing by energy fi rms, has registered more than 1 million square feet in offi ce space absorption so far this year, CBRE reported. “Th e Energy Corridor’s Class A space is 97 percent leased and the market is pushing toward full occupancy by year’s end,” said Sanford Criner, executive vice president of CBRE. Demand for offi ce space continues to rise and only 2.7 million square feet of space is currently under construction. Most of the new offi ce space is pre-leased and all of the projects are in the suburbs. “We are not building enough space to keep up with demand,” Criner said. Th e offi ce market will get tighter before availability expands – only two new buildings will be completed this year; most of them won’t be completed until 2013. About two dozen new offi ce projects have been proposed. “We think there’s demand for 9 million square feet of new offi ce space in the Energy Corridor,” said Bernard Branca of CBRE. Th e growing demand for offi ce space and the modest pace of construction of new 34 SEPTEMBER 2012
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