Houston Real Estate Market Heats Up in 2018: What Buyers & Sellers Need to Know
HOUSTON – (By Michelle Leigh Smith, Realty News Report) – As 2018 began, institutional investors have refocused on Houston, and both the industrial and multifamily sectors still show room for growth. Experts at the BoyarMiller Annual Commercial Real Estate Forum at the Briar Club on Thursday painted an optimistic picture for Houston commercial real estate.
Despite two workdays lost to the recent ice storm, the audience showed no sign of restlessness. Brokers and investors of all ages listened intently to the Forum’s three speakers: Jonathan Brinsden, CEO of Midway; John Nicholson, EVP of Development for AVERA Companies; and Jimmy Hinton, Managing Director of Research at HFF.
John Nicholson III, EVP of Development for AVERA, a private firm focused on the industrial market, expects continued positive activity in plastic resins and consumer products. Nicholson, who previously played professional baseball before moving into industrial real estate, said the sector’s expansion is changing tenant expectations.
As industrial development accelerates, tenants are seeking higher-quality warehouses with modern features and amenities.
“Tenant demand for new industrial space is driven by higher ceilings, wider column spacing and deeper truck courts,” Nicholson explained.
Nicholson credits the industrial growth in Houston to both the rise in rooftops and the widening of the Panama Canal. “Shippers have altered their routes, and Port of Houston container volumes have grown by about 15 percent,” he said. “Global retailers and distribution centers continue to expand here. New petrochemical plants are coming online—Baytown is one example—where we’ll see continued rail-served warehouse development.”
Jonathan Brinsden of Midway addressed the multifamily market, noting that while developers added many units to the pipeline—about 20,000 in 2016, 14,000 in 2017 and 8,000 in 2018—a large share of those units has been absorbed.
Brinsden anticipates strong multifamily construction in the year ahead and pointed to the National Multifamily Housing Council’s recent ranking placing Houston third among undersupplied housing markets.
“We underestimated how much urban residential demand would be driven by millennials,” Brinsden said. “But our tenant profile shows an average age that is higher than expected. Renting has shifted from necessity to choice as the right product has become available.”
“There’s a much larger market for residential growth than many assumed,” he added.
Brinsden described Midway’s enthusiasm for mixed-use development centered on a major public park. “We were excited to build around a world-class community park with Kirby Grove,” he said. “Forming a public-private partnership with the Upper Kirby Redevelopment Authority and the City of Houston Parks and Recreation made the project more appealing. Our experience with CITYCENTRE showed how an active public greenspace can enhance both commercial and residential development, and the City’s success with Discovery Green has been a tremendous boon to downtown housing.”
Adjacent to Levy Park, Midway built Kirby Grove, a 16-story Class-A office building with 225,000 square feet of office space and 25,000 square feet of ground-floor restaurant space. The project’s first restaurant, Kiran’s, opened on Richmond Avenue and attracted a loyal following for chef Kiran Verma; Gensler designed the interiors. MidiCi The Neapolitan Pizza Company also opened there. Kirby Grove is currently about 86 percent leased, with co-working operator Spaces as its most recent tenant.
After a slow market the previous year, Jimmy Hinton said major investors are bullish on Houston for 2018. “There is roughly $150 billion of dry powder waiting to be deployed—but those investors are patient,” he said. “Viewed from the outside, you can still find better deals here than, say, paying San Francisco prices for a four-cap apartment building. The potential to raise cap rates through net operating income accretion is stronger in Houston given our place in the economic cycle compared with other domestic markets.”
Hinton asked attendees to picture Houston through the eyes of a sovereign wealth investor, such as the Canada Pension Plan Investment Board, which manages hundreds of billions of dollars and allocates a portion to real estate. “Imagine you’re charged with investing and building partnerships across retail, apartments and industrial,” he said. “When it comes to office, you might place a substantial, direct investment in Houston properties. Last year, for example, CPPIB acquired assets that included Greenway Plaza.”
To help investors and observers see the full market picture, Hinton offered a visual analogy. Referencing impressionism and the related technique of pointillism, he asked the audience to step back and take a wider view. “Up close, you only see dots,” he said. “Step back, and the market becomes much clearer.”
