HOUSTON – Most of Houston’s office buildings avoided major damage from Hurricane Harvey, with flood losses concentrated primarily in West Houston, Allen Parkway, the West Loop/Galleria area, and the FM 1960/Highway 249 corridors, according to an analysis by global commercial real estate firm CBRE. Of the roughly 1,200 office buildings in the market, about 40 experienced some degree of damage.
Residential properties—both single-family homes and multifamily buildings—sustained the greatest share of storm impact. Damage in the industrial and retail sectors was generally limited to the hardest-hit neighborhoods.
“Houston’s commercial real estate market has shown resilience after enduring Hurricane Harvey and one of the largest rainfall events recorded in decades,” said Spencer Levy, CBRE’s Head of Research for the Americas. “The recovery outlook is positive, though short-term disruptions should be expected. In certain submarkets, available space to accommodate displaced workers will become scarce, and rebuilding activity will temporarily boost retail sales and increase demand for warehouse space from suppliers serving the construction and repair effort.”
Retail damage was not widespread, CBRE found. Losses were mainly concentrated in neighborhood and strip centers within the hardest-hit residential suburbs, including Kingwood to the northeast, Cypress to the northwest, and parts of West Houston.
Robert C. Kramp, Director of Research & Analysis for CBRE’s Texas-Oklahoma Division, noted that residential flooding was concentrated in three of the nine counties that make up the 700-square-mile Greater Houston market. The majority of affected units were single-family homes in suburban areas northeast, west, and southwest of downtown Houston. An estimated 100,000 multifamily units—roughly one in six—were flooded, eliminating any excess softness in the multifamily sector and creating immediate leasing demand in several high-density submarkets.
In some denser neighborhoods, damage affected as much as 30 percent of existing inventory—about 22,300 occupied units—which has created urgent demand for replacement housing and temporary accommodations.
Retail and industrial sectors performed better overall. Retail impairment was generally confined to neighborhood centers serving suburban, single-family neighborhoods such as Kingwood, Cypress, and parts of West Houston. Kramp said national retailers are not expected to alter expansion plans because of the storm, although tight market conditions and limited availability will continue to constrain leasing activity.
“Displaced retail tenants have begun searching for temporary locations, but the tight market has limited their options,” Kramp said. “Home improvement and related retailers already operating in the strong housing market are accelerating location decisions to meet repair demand resulting from the historic flooding.”
Most of Houston’s industrial properties sustained little to no structural damage. Isolated impacts were reported for some institutional, dock-high Class A buildings, particularly on the West Side and along the I-10 corridor.
Office tenants affected by flooding are actively seeking turnkey temporary space and generally expect to return to their original locations within weeks to a month. Many are opting for short-term lease solutions rather than long-term direct leases. With more than 11.1 million square feet of sublease space available in Houston at midyear, there are options for displaced tenants, though CBRE expects sublease availability to decline in the third quarter as demand increases.
FEMA reports indicate Houston’s largest industrial clusters—the inner Northwest and inner North/Northeast—saw relatively few properties classified as “major damaged” or “destroyed.” Damage was more likely among older buildings and properties located close to Houston’s bayous.
The extensive reconstruction and repair effort—forecast to include repairs or rebuilding of an estimated 100,000 homes—is expected to drive higher industrial occupancy, particularly in light-industrial and distribution space for building materials and construction supplies.
Multifamily submarkets in northwest and northeast Houston are likely to experience sharp occupancy gains and a rapid disappearance of concessions as displaced residents seek housing, CBRE reports.
“Overall, Houston’s recovery will take time, but its diversified and robust economy should support a strong rebound,” Levy said.