Houston’s economy is showing signs of recovery as oil prices climb and activity in the oilfields increases. Ongoing population growth continues to strain the city’s road network, prompting city leaders to explore enhanced public transit options. While institutional investors remain cautious about Houston’s office market—where vacancy rates have been rising—the single-family housing market remains remarkably strong. At the same time, the high-end multifamily sector is encountering challenges. Real estate appraiser and consultant Mark O. Sikes monitors major transactions, market trends, and public policy across Houston and other major Texas markets. As a principal at Deal Sikes & Associates, Sikes has appraised thousands of commercial and residential properties, urban and rural land, hotels, and REIT portfolios, and he has worked on hundreds of eminent domain matters related to roads, rail, and pipelines throughout the state. As 2017 began, Realty News Report spoke with Sikes about his expectations for Houston in the coming year.
Q: What new trends are emerging in Houston real estate?
Sikes: Mixed-use developments are becoming much more common. Beyond long-established centers like the Galleria and CityCentre, developers are building denser urban projects that combine multifamily, retail, office space, and sometimes hotels. A growing pattern is apartments located above grocery stores, and several developers are constructing two-story retail buildings inside the Inner Loop. These projects reflect Houston’s shift toward a more urban form. One notable example is the Buffalo Heights development on Washington Avenue by Midway and Lionstone Investments, which will include a mid-rise building with office space and apartments above a grocery anchor.
Q: Which public projects will have the biggest impact on Houston?
Sikes: The Post Oak Boulevard widening and beautification project in Uptown is a major public investment that includes plans for an effective transit solution. Once completed, it will elevate the district and provide long-term benefits for the region. This is a game-changing infrastructure effort. In downtown, the proposed rerouting of Interstate 45 would be transformative for the Central Business District and institutional-grade properties, and it would reshape Midtown and the east side of downtown as well if TxDOT’s plan proceeds. Other significant freeway projects include the ongoing expansion of Highway 290 in the northwest and additional lanes being added to Highway 288. These transportation projects will shape the city’s future growth patterns.
Q: There have been strong reports about the shopping center market. What’s your view?
Sikes: Houston’s retail sector has benefited from its lowest vacancy rates in a decade. Suburban construction is robust as retailers continue to expand to meet population growth and the surge in suburban single-family development. These solid fundamentals have produced strong valuations for area retail centers—particularly grocery-anchored shopping centers, which are among the strongest assets in the market right now. Overall, retail looks set to remain a hot sector through 2017.
Q: How is the office market performing?
Sikes: Office vacancies rose and landlords have been offering concessions to secure tenants. Trading activity for office buildings has been limited, and sellers may face disappointing valuations until conditions normalize. In 2016 a large volume of sublease space entered the market, though leasing activity is gradually absorbing much of that supply.
Q: What about medical real estate? There seems to be a lot of construction in Houston.
Sikes: An aging population is increasing demand for healthcare services and hospital capacity. Policy changes at the federal level could affect the healthcare landscape, but the implications remain uncertain. Meanwhile, Houston’s population growth fuels demand for suburban medical office buildings and development sites for hospitals and healthcare campuses. There is substantial medical construction underway in southeast Texas, and demand for senior housing in the suburbs is also rising.
Q: What do you expect for Houston real estate in 2017?
Sikes: Deal Sikes & Associates expects a reasonably positive year in 2017. The energy sector appears to have stabilized, and job growth in Houston should improve modestly. Although the overhang of vacant office space remains a concern, construction activity in that sector has largely paused. The residential market is performing well, and many previously weak areas of the market appear poised to strengthen. Overall, current trends point toward a solid 2017 and momentum heading into a stronger 2018.
Jan. 3, 2017 Realty News Report Copyright 2017