Oct. 16--Houston commercial real estate is on fire across all sectors, but the robust pace of construction may start to taper off along with job growth.
"If you take a snapshot now, it's probably as good as we've seen it," Mark Taylor, senior managing director of CBRE, told journalists and business leaders Tuesday at a quarterly luncheon hosted by the commercial real estate firm.
His comments came shortly after an announcement that downtown's historic 712 Main Street building, the local headquarters for JPMorgan Chase, had been sold for an undisclosed sum.
Speakers at the CBRE luncheon described an active commercial scene, with about 12 million square feet of office space under construction across the area. Almost 80 percent of that is already spoken for.
"The office market is so strong and stable as to become almost dull," said Sanford Criner, executive vice president, global corporate services, at CBRE.
The occupancy rate is 93 percent for top-quality buildings across the Houston area, CBRE said.
As new buildings are developed, Criner predicted vacancy rates could rise in some older ones.
The Energy Corridor and The Woodlands are the hottest areas for office leasing and development, but the Texas 249 region in the northwest is adding space as well. Noble Energy is developing a campus there, and Swift Energy has committed to a building, Criner said.
He and others cited concerns that slowing job growth may temper some of the activity. The Houston area's job growth this year is projected to grow by 2.8 percent, or 76,000 jobs, said Patrick Jankoswki, vice president of research at the Greater Houston Partnership.
That's down from a peak of 119,300 recorded in the 12-month period that ended in February.
"We're returning to sustainable and normal," Jankoswki said.
For now, land prices have shot up as developers snap it up to meet demand for all types of projects, from apartments to office to industrial and now retail.
In the latter, 93 percent of 200 million square feet of local retail space is occupied, Taylor said. Just 1.5 million square feet is under construction.
"There is a tremendous amount of pent-up demand," said Simmi Jaggi, first vice president in the CBRE land group. "There's very little vacancy across Houston and suburban markets."
Grocers set pace
The developments are largely driven by grocery-anchored lifestyle centers rather than big-box stores such as Home Depot or Target, Jaggi said. She noted that 20 grocery deals are in the pipeline.
Developers are eyeing areas such as Aliana along the Grand Parkway south of Katy and in Fulshear, Jaggi said.
"Grocery is going gangbusters now," added Alex Makris, a senior associate in the retail group at CBRE. He said Kroger, H-E-B, Sprouts, Aldi and The Fresh Market are all expanding.
The industrial sector is also strong. Just 5 percent of 450 million square feet is vacant. Another 10 million square feet are under construction.
Developers will push far west to Katy and north to Conroe as the next hot areas after the U.S. 290 corridor, Taylor said.
The downtown tower deal announced Tuesday involved the 37-story art deco-style 712 Main property, which was built in 1929 by Jesse H. Jones for Gulf Oil and the National Bank of Commerce. After later expansions, it now totals 794,186 square feet. Eight frescoes depicting Texas history adorn the lobby walls.
"It is truly a local treasure nestled beautifully in the heart of downtown Houston, and cutting-edge tenants are finding it very desirable," Glenn Lowenstein, an executive with new owner Lionstone Group, said in a written announcement.
The Houston-based real estate firm bought 712 Main from Brookfield Asset Management, which is also marketing the iconic Heritage Plaza for sale. Dan Miller and Trent Agnew of HFF represented Brookfield Asset Management in the transaction.
Brookfield Asset Management purchased the building from JPMorgan Chase in 2010. The bank remains a tenant in the building, which serves as Texas headquarters for its southwest banking operations under a lease through 2030.
The property is 85 percent leased, with 43 tenants.