Monthly Archives: November 2019


Demand for industrial property continues to outstrip developers’ capacity to deliver new space, according to Transwestern’s latest national report on the sector. Occupiers soaked up a net 41.2 million square feet in the third quarter of 2019,
a 23% decrease from 53.2 million square feet absorbed in the previous quarter and less than half the pace in third quarter 2018.

Meanwhile, the national vacancy rate ticked up for a third consecutive quarter to reach 5.0%. New industrial projects are leasing quickly and often before construction is complete, with vacancy concentrated in older properties.

“Much of the older-generation industrial space vacated as users have upgraded to newly constructed properties remains unleased,” said Matt Dolly, Research Director in New Jersey. “While that results in what appears to be increased availability at the national level, the scarcity of functional space in prime locations is slowing absorption. Users are committing to lease newer, more efficient properties even before construction has started rather than take an aging alternative in a less desirable location.”

Developers are racing to answer unmet demand and had 427.5 million square feet of construction underway at the end of the quarter. That’s up from 407 million square feet in the second quarter, also a record. The volume of new product entering the market helped raise average asking rent to $6.42 per square foot.

“E-commerce and logistics operations are typically less sensitive to rent than to transportation costs,” Dolly said. “These occupiers are more likely to consider locations that shorten last-mile deliveries and reduce overall operating cost.”

In some built-out markets such as Southern California, developers must vie for sites to introduce new supply, often by acquiring and redeveloping existing structures. Of the 47 industrial markets tracked by Transwestern, the region posted the three lowest vacancy rates in the third quarter with Los Angeles at 1.2%, Orange County at 2.4% and the Inland Empire at 2.8%.

Michael Soto, Research Manager in Southern California, says uncertainty stemming from the ongoing U.S.-China trade war hasn’t dampened that market’s occupier or investor demand for industrial real estate.

“Strong industrial real estate fundamentals in the Greater Los Angeles metro continue to create the most supply-constrained conditions in the country,” Soto said. “Investors have responded with nearly double-digit, year-over-year rental rate growth, record-high pricing, and record-low average cap rates.

Other markets with vacancy below 4% include Detroit (3.3%); Long Island, New York (3.2%); Minneapolis (3.2%); Nashville, Tennessee (3.6%); New Jersey (3.5%); and Raleigh/Durham, North Carolina (3.7%).

Healthy consumer spending continues to support industrial demand and is expected to strengthen in the holiday season, though at a slower rate than in 2018. Transportation and warehousing employment continued to expand in the third quarter, while business confidence slipped, especially in manufacturing.

 


The Bank of America Tower has sold for $542 million, according to a report in Real Estate Alert, a newsletter for institutional investors. At $695 a square foot, the deal would mark a record per-foot price for Houston, easily beating the previous record of $528 a square foot. The news shows that there’s a market for new, high-end office space even as Houston’s office market overall suffers from high vacancy rates.

The newsletter reported that the buyer was California teachers’ pension fund manager CalSTRS.

The 35-story tower at 800 Capitol opened this summer with 88 percent of its office space pre-leased. Originally called Capitol Tower, the 754,000-square-foot building was renamed the Bank of America Tower after the bank decided to consolidate its three downtown offices to 210,000 square feet in the project. Other tenants include Waste Management, Winston & Strawn and Quantum Energy Partners.

A lushly landscaped 24,000-square-foot “sky park,” a 35,000-square-foot community hub and culinary market and 10,000-square-foot conference and events center are among the amenities meant to attract tenants to space. According to the tower’s developer, Skanska, the LEED-certified tower uses 32 percent less energy than the typical office tower.

According to commercial real estate firm CBRE, 19.3 percent of Houston’s office space was vacant in the third quarter, and the average annual asking rate was $28.78 per square foot.


Allen is the fourth development between DC Partners and GT Leach, and second with Thompson Hotels.

HOUSTON—The Residences at The Allen and Lifestyle Pavilion, a multi-use development, recently broke ground, and will include the luxury brand Thompson Hotel, according to DC Partners. In addition, space will include a fitness club, two restaurants, retail spaces, and an office building.

Situated across six acres at the southeast corner of Allen Parkway and Gillette Street, the development overlooking Buffalo Bayou Park will serve as a crossroads between downtown and the Galleria/Uptown area, and Midtown and the Texas Medical Center.

The groundbreaking “is a significant milestone for The Allen,” said Roberto Contreras, CEO of DC Partners, the developer of The Allen. “I am very proud of the dream team we have put together for this project. This is the fourth development for DC Partners with general contractor GT Leach and our second project with Thompson Hotels. Our goal is to change the way Houstonians think about high-rise living and deliver a lifestyle that is representative of luxury hotel living without sacrificing all the privacy of your own home.”

The DC Partners team was joined at the recent groundbreaking by Tianqing Real Estate Development, Westmont Hospitality Group, HOK, Abel Design Group, and GT Leach.

“We’re thrilled to be introducing the Thompson Hotels brand to Houston in our second collaboration with DC Partners in the state of Texas, as part of this landmark mixed-use development,” said Catie Mangels, vice president of residential, lifestyle development and owner relations for Hyatt. “The innovative vision and pioneering spirit behind The Allen are well aligned with the Thompson brand’s legacy as a disruptor in the luxury lifestyle hotel segment.”

The Residences at The Allen will offer services and full amenities provided by the Thompson Hotel, including 24-hour concierge and room service, spa, city views, and a pool deck with cabanas and restaurants. A helistop will be available to hotel guests and residents and is engineered to accommodate drone deliveries and transportation of the future.

“The Allen will be the first new construction development in Houston to have this amenity,” Contreras tells GlobeSt.com. “One of our goals for this project was to incorporate innovative amenities and technologies, as well as thinking about how people will live in the future. This includes drone deliveries as the industry continues to evolve, as well as the future of drones that will transport people. Additionally, the helistop will allow for quick trips to surrounding  airports and provide life safety services to the nearby Houston Medical Center.”

The Lifestyle Pavilion will feature 52,000 square feet of retail and restaurant space and is currently 80% leased. Residents and hotel guests will enjoy an endless backyard as it serves as an extension of the outdoor active lifestyle of Buffalo Bayou Park.

The Residences at The Allen are currently 15% sold. The 99 units will consist of one-bedroom, two-bedroom, and three-bedroom condos, as well as 17 penthouses ranging from 919 to 10,000 square feet. Expected delivery of the Lifestyle Pavilion is fourth quarter 2020, with the grand opening during the first quarter of 2021. The hotel-condo tower will be completed in 2023.

The Allen is developed by DC Partners with investment from Tianqing Real Estate Development and Westmont Hospitality Group. The site plan and architecture were led by HOK, and interiors for the hotel and residences were provided by Abel Design Group. Houston-based GT Leach will serve as a general contractor for the hotel, condo and lifestyle pavilion development.

Rents set a record high at $1.18 per square foot, with multifamily occupancy at its highest since the energy downturn, according to a third-quarter report by CBRE. Year-to-date net absorption reached 12,989 units as of the end of the quarter.

Job grew at 2.7%, adding 81,900 jobs. Among these, 22,800 were in professional and business services say CBRE.


First Look At Midtown Ion Innovation Hub's Plan For Surrounding Area Revealed

The public finally has a sense of the scope of Rice University’s proposed redevelopment of the former Midtown Sears. Dubbed The Ion Innovation Hub, the project looks to be a game-changer for the surrounding area. In a variance request first reported by the Houston Chronicle, plans show 13 proposed structures with green space connecting them.  Work on the Midtown Sears and an accompanying parking garage are well underway and renderings of a finished project have been officially released. Plans for the surrounding area, owned mostly by Rice University, have been vague but ambitious. The documents filed by consulting firm Vernon G. Henry & Associates on behalf of Rice are the first look at plans for the area, which appears to include extensive landscaping.
The Ion Innovation Hub Proposed Site Plan

The plans indicate Phase 1 will focus on the three parcels adjacent to the north, east and northeast of the Midtown Sears site, where three buildings totaling roughly 102K SF and a 22.5K SF civic plaza will be developed. Plans for the rest of the project will come in future phases.


Houston has, for the most part, survived the oil downturn, but some areas are still in recovery.

Though Houston’s commercial real estate market is doing well overall, the office sector is still struggling with high vacancy rates.

Eli Gilbert, director of research at commercial real estate firm JLL in Houston, said this has to do with oversupply and jobs lost during the downturn.

Also, companies have learned to be more efficient with less space.

“Looking at the overall vacancy rate,” he said, “particularly in the office market, in the future, a higher value than has historically been seen may become the new normal for the region.”

The office vacancy rate is currently around 20%, with estimates placing the amount of vacant office space between 50 and 60 million square feet, according to the Greater Houston Partnership’s 2019 Employment Forecast.

Gilbert said population growth is the main driver for the other commercial real estate sectors, which include industrial, retail and multi-family.

The industrial market, in particular, is benefiting from an increase in online sales and demand for distribution centers.


Stockdale Capital Partners has acquired a 433,132-square-foot creative office building in Houston’s Greenway submarket. Principal Real Estate Investors sold the Class A property, while Cigna Realty Investors facilitated the transaction with a seven-year, fixed-rate acquisition loan.

Located at 20 Greenway Plaza, the ten-story asset is within walking distance of several dining and retail options, as well as residential properties. The location provides easy access to Houston’s major thoroughfares and public transit. Originally built as a retail property in 1984, the tower was converted for office use in 2002, according to Yardi Matrix information. Most recently, the building underwent upgrades in 2014.

Also known as the Koch Building, 20 Greenway Plaza was 95 percent occupied at the time of sale. Its tenant roster includes notable companies such as Merrill Lynch, Mitsubishi, Sunnova Energy Corp., REALEC Technologies and Koch.

Principal Real Estate worked with HFF Senior Managing Director Dan Miller and Managing Director Trent Agnew, while the brokerage company’s debt placement team led by Managing Director Trent Agnew arranged the financing on behalf of the buyer. Recently, Miller was part of the team handling the sale of One Sugar Creek Center, a 193,998-square-foot office building in Sugar Land, Texas.


JLL announced today that it has closed the sale of The Mix @ Midtown, a 73,000-square-foot, fully leased Class A retail property that is housed on an entire city block in Houston’s Midtown neighborhood.

JLL marketed the property on behalf of the seller, Crosspoint Properties, who developed the property in 2008. The fifth Corner, in a joint venture with Pointer Real Estate Partners, purchased the asset.

The Mix @ Midtown anchors Houston’s Midtown neighborhood, a highly walkable neighborhood and Houston’s primary 24/7 district near downtown and the Texas Medical Center. The property pioneered the first mixed-use asset in the area. It is fully leased to a best-in-class roster of experiential retailers, including 24 Hour Fitness, Jinya Raman Bar, Artisans Restaurant, Gen Korean BBQ, Piola, Kung Fu Tea, and Cloud 10 Creamery. Situated on 1.43 acres at 3201 Louisiana Street, The Mix @ Midtown spans an entire city block in Houston’s Midtown neighborhood and includes a 296-space parking garage, a unique feature in MIdtown. The property is located at the hard corner of Louisiana and Elgin, which is Midtown’s busiest intersection with approximately 45,000 vehicles passing through daily.

Midtown is sandwiched between the two largest employment centers in Houston, including downtown (300,000 daytime population) and The Texas Medical Center (107,000 daytime population). The demographics in Midtown and around The Mix are staggering, with 188,000 residents with an average annual household income of $127,000 and a daytime population exceeding 400,000 workers within a three-mile radius. The area benefits from access to the METRORail Red Line, which, as one of the nation’s most traveled metro lines based on boardings per track mile, connects downtown Houston to the Texas Medical Center and passes right through Midtown just two blocks from The Mix. Additionally, Midtown is highly walkable, evidenced by a Walk Score of 86, and is flush with parks, art galleries, restaurants, and nightlife. Several major developments are underway in Midtown highlighted by Morgan Group’s Whole Foods-anchored residential building (one block away) and Rice University’s Ion innovation district. Phase I of the Ion will be a $100 million renovation of a 270,000-square-foot Sears, which will serve as a gathering place for startups, large corporations seeking new technologies, venture capitalists, business accelerator and academics.

The JLL Capital Markets team representing the seller was led by Senior Managing Director Rusty Tamlyn, Directors John Indelli and Michael Johnson and Analyst Bryan Strode.

“Packed with high-rise apartments, big incomes, walkability, public transportation, daytime population and greenspace, all the ingredients are in-place for Midtown, which has evolved into one of Houston’s top retail, office, and living destinations,” Indelli said.

JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge deliver the best-in-class solutions for clients — whether investment advisory, debt placement, equity placement or a recapitalization. The firm has more than 3,700 Capital Markets specialists worldwide with offices in nearly 50 countries.


While WeWork’s precipitous drop in valuation, from $47 billion in January 2019 to some $10 billion today, has spooked some investors, it doesn’t mean all new commercial real estate plays are overvalued or not worth investing in. Capital continues to flow into these startups, especially as today’s workers redefine the workplace.

NY-based SquareFoot just announced a $16 million Series B funding round, led by DRW VC, which includes existing investors, Triangle Peak Partners, RRE, and Rosecliff Ventures. The investment follows last year’s $7 million A round and brings the total round of funding to more than $29 million.

SquareFoot is a real estate broker for companies (under 70 employees typically) seeking office space, specifically in New York, downtown Houston, and some other major cities. The website SquareFoot.com is actually quite intuitive and clean and has a similar navigation experience as Zillow, one of my favorite websites.

“There was nothing like Zillow out there for companies looking for office space,” said Jonathan Wasserstrum, CEO and co-founder of SquareFoot, in an interview with me when I asked why he started the company. SquareFoot was founded in 2011.

In addition to a nice UI, SquareFoot has two relatively new services that expand the company’s functionality. They include PivotDesk, which helps pair companies or tenants with unused office space. And FLEX by SquareFoot, which helps companies seeking shorter-term leases. PivotDesk is “Airbnb for office space,” Jonathan explained. If landlords have extra space, they can post on SquareFoot. “PivotDesk helps solve the challenges as it relates to the amount of space available while FLEX helps solve for the terms or length of leases.”

Typically, landlords want to sign 5-10 year leases whereas younger companies want to sign 3-5 yrs, so this serve can help manage this, he added, explaining that SquareFoot would sign the longer-term leases and then manage the short-term leases with its tenant clients.

The overall trend that SquareFoot is riding is the move toward flexible office space. According to CBRE, flexible space as a percent of total office inventory in the US is about 2 percent. Manhattan and San Francisco is a little higher at 3 percent. In some markets, such as London and Beijing, flexible office space accounts for more than 5 percent. Jonathan says the market is estimated to grow to 25-35 percent in the next 10 yrs.

SquareFoot’s latest investment is earmarked for expansion into new cities.


With retail e-commerce sales in the U.S. projected to soar from $501 billion in 2018 to $740 billion in 2023, it’s no wonder that Houston’s industrial market is expanding faster than Santa’s bag of toys.

E-commerce is one of the main drivers of an upturn in industrial construction in the Houston area. Estimates from four commercial real estate services companies show that during the third quarter, anywhere from 13.3 million square feet to 18.5 million square feet of industrial space was under construction in the region. That volume is up considerably from the second quarter of 2019 and from the same period in 2018.

Around the country, the “need for speed and choice” to appease shoppers is driving a lot of the increased demand for industrial space, Hamid Moghadam, chairman, and CEO of industrial REIT Prologis, recently told Wall Street analysts. That, he said, is because “the more choices you want and the quicker you want them, the more inventory you need to position near the customers.”

Rob Stillwell, executive managing director in the Houston office of commercial real estate services company Newmark Knight Frank, says many of the local industrial facilities geared toward e-commerce are being built in and around pockets of residential growth. This includes a swath from I-10 West in Katy to I-45 North toward The Woodlands. Among the facilities popping up in that corridor are massive projects for Amazon, FedEx, and UPS, according to Stilwell.

“E-commerce is likely a contributing factor to many distribution operations in Houston, but not the sole reason for the strong demand seen in the market,” Stilwell says. Many new or expanding industrial tenants in the market do have an e-commerce component, he adds, yet won’t be leasing space just for e-commerce purposes.

In Houston, the e-commerce-fueled construction of industrial space is especially prevalent near George Bush Intercontinental Airport, according to commercial real estate services company Cushman & Wakefield. However, Houston’s northwest submarket is seeing the most industrial construction in the area, with 5.5 million square feet underway in the third quarter.

Commercial real estate services company JLL pegs the southeast submarket as the hottest, with its third-quarter report showing 3.5 million square feet of new industrial projects underway there.

Aside from e-commerce, the Port of Houston and the petrochemical sector are propelling industrial construction in the area, Cushman & Wakefield says.

Around the Houston area, nine of the 89 industrial spaces under construction in the third quarter exceeded 500,000 square feet, Cushman & Wakefield says. Several of those lack a specific e-commerce element. This includes a 1 million-million-square-foot manufacturing facility for Coca-Cola, a more than 770,000-square-foot distribution center for Home Depot, and a nearly 550,000-square-foot distribution center for Costco.

Cushman & Wakefield warns that Houston’s industrial market could suffer from an oversupply of space, as well as from a drop in shipping activity prompted by ongoing trade disputes and a decline in oil prices. Although the industrial vacancy is expected to rise slightly through 2021, the company says, “demand continues for more modern, state-of-the-art facilities and market fundamentals remain healthy.”

During the third quarter, only one-fourth of the space under construction in the Houston area was preleased, according to commercial real estate services company Colliers International. However, another 10 percent to 25 percent of that inventory should be preleased before the facilities are completed, the company says.

The area’s industrial vacancy rate rose to 7.7 percent in the third quarter as new projects came online, Cushman & Wakefield says. Once more supply arrives, the vacancy rate is expected to tick up.

“Low-interest rates and robust investor demand are expected to continue generating strong interest for Houston industrial assets. On the fundamentals side, the market is closely watching new inventory additions,” JLL says.


Houston's Busiest Square Mile? New Projects Bringing Density To MontrosePeople who think Houston is all about urban sprawl haven’t been to Houston lately. Houston’s 610 Loop has been a hotbed for infill development. A stretch of land just south of Buffalo Bayou — roughly 1.5 miles long and 0.5 miles deep — is attracting infill development at a rapid pace. The latest projects, a 600-unit mid-rise with 50K SF of retail from GID and a separate $500M mixed-use development from DC Partners, are a sure sign the city’s real estate perception is changing.

“It has been amazing to see the transformation of Houston in the decades since GID first acquired this property, and we feel patience has truly been a virtue in determining how best to knit this site into the area’s ongoing evolution,” GID Development Group President James Linsley said.  The area is expected to add 1,700 new units on West Dallas between Dunlavy and Shepherd, according to ApartmentData.com. Most will be in mid-rise or high-rise projects.  GID Development Group broke ground on the second phase of Regent Square, an 8-acre tract at West Dallas and Dunlavy Street, just south of Houston’s prominent Buffalo Bayou Park. Announced in spring 2019 and designed by acclaimed Boston-based architectural placemaking firm CBT, Phase 2 aims to be game-changing urban infill development, bringing an Old World-style town square into the thriving heart of Houston’s most rapidly densifying neighborhood.

Tomorrow DC Partners will break ground on its $500M project known as The Allen, set to be anchored by a 34-story hotel and condo tower. DC Partners’ The Allen will rise on a 6-acre tract, featuring 250K SF of Class-A office, a 170-room Thompson Hotel, and 95 condos. Once completed, five towers will occupy the site.  Blocks away, Weingarten Realty is planning The Driscoll, a 30-story luxury high-rise with 300 residential units. The Montrose at Buffalo Bayou, under construction, will add another 224 units in an eight-story mid-rise. Hanover is planning Hanover Buffalo Bayou, which looks to be the company’s biggest project in Houston yet, with early documents showing plans for a 23-story residential tower and 21-story office building.  All of this new density coming to Houston is happening in roughly one square mile.  “It’s very clear one could see four or five additional towers there over a long period of time,” Weingarten Realty Investors CEO Drew Alexander said during a third-quarter conference call with analysts. Weingarten hasn’t announced formal plans for additional towers at the site near the historic River Oaks Theater, but with the rapid densification, it may be in the future.  “I think it will become denser over the next 10, 20 years certainly,” Weingarten Senior Vice President Gerald Crump told the Houston Chronicle when the project was announced more than two years ago. “It is possible you could end up with the office, hotel or further residential units.”

Master-planned communities and suburban sprawl are still common in the outlying Houston areas. With few land constraints, historically Houston has had few reasons to pursue density. As renter demographics shift and the city grapples with increasingly frequent flooding issues, density and height have become favorites in Houston’s urban core. While the city has a long way to go, areas like Downtown, Uptown, Greenway Plaza and now the Buffalo Bayou southern bank show promise for Houston’s dense, walkable future.