Houston’s office market is improving and the industrial and retail sectors continue to charge forward, according to a quarterly update from commercial real estate services firm NAI Partners.

Brokers at the company’s Galleria area office shared insights on the market at a quarterly press update Wednesday. Some takeaways:

OFFICE

The office market is still in a slump — roughly 60 million square feet of office space throughout the metro area lies fallow.

And while some statistics suggest rents have risen, Dan Boyles, an NAI tenant representative, said those numbers are deceptive.

“The rents that are going up are really gross rents, they’re not net effective rents, which are still under significant pressure,” he explained. In other words, landlords are offering such large concessions that the actual rent received over the term of the lease remains low. Boyles said he is seeing significant concessions in both new buildings and older, lower-quality buildings.

While it’s still a tenant’s market, Boyles said leasing activity has taken more space off the market over the past few quarters, referred to as positive absorption. For the first time in a long time, some NAI clients are discussing expanding their office space requirements. In the first quarter of 2019, the Houston market absorbed half a million square feet.

“Which is marginal,” Boyles said. “But better than the other way around.”

INDUSTRIAL

Houston has historically been more of a manufacturing-based industrial market, but it’s shifting to a distribution market.

Million-square-foot spec warehouses are coming, said Clay Pritchett, a partner in the industrial and land brokerage services practice at NAI.

Spec warehouses used to be 200,000 to 300,000 square feet. Now they’re 600,000 to 800,000 square feet. Breaking the 1 million-square-foot mark would put Houston in the league of distribution markets such as Dallas-Fort Worth, Chicago and the Inland Empire in Southern California.

RETAIL

Mixed-use is becoming a bigger component of retail.

“There’s a big flight to urbanization,” said Jason Gaines, senior vice president, retail services at NAI Partners.

Investors are interested in re-purposing empty big-box stores into last-mile distribution centers. In a 350-foot depth building, a developer might put anchor tenants in the front 250 feet and transform the back into a logistics point.

That type of use hasn’t yet arrived in Houston, but these types of creative conversions are happening in places with more inventory of space such as the Midwest, Gaines said.

Houston’s retail has remained fairly full, with occupancy at or above 94 percent during the last five years.

“The developers have learned to self-police this industry,” Gaines said. “They’re not building a lot of specs anymore.”

For more information on Houston office space, Houston retail space or Houston warehouse space and Houston industrial space, please call 713 782-0260 or see my web site at : www.houstonrealtyadvisors.com  Thank you for your interest.

Occidental Petroleum Corp. has put real estate matters on the back burner since acquiring Anadarko Petroleum Corp. for $38B earlier this year.  That hasn’t stopped the real estate community from chiming in on the future of Anadarko’s twin towers in The Woodlands.  The Woodlands Area Economic Development Partnership has one solution: Move the headquarters to The Woodlands.  “This is where we want them to be,” CEO Gil Staley said during Bisnow’s Future of Montgomery County event in The Woodlands. “I am selfish. We want the headquarters.”  However, this is no simple task. Staley said OXY CEO Vicki Hollub, who lives in Galveston, said she had not considered relocating the company to The Woodlands from Houston’s Greenway Plaza, where its headquarters has been since it relocated from Los Angeles five years ago.    A few weeks ago, Staley, along with a host of community and business leaders, met with Hollub to present a unified message about the importance of OXY to the region. Among the first major corporations to locate in The Woodlands, Anadarko opened its first 30-story building in 2002 and the 31-story tower in 2014.

The move spurred economic development with additional corporate office campuses and healthcare expansion nearby.  Anadarko is the largest private employer in Montgomery County, totaling about 3,700 employees including part-time and contract workers. The departure of the oil and gas company could result in lower sales tax revenue, homes sales and traffic counts for the area, Staley said.    OXY is offering a voluntary severance package to its employees. Once it is complete, the company will have a clearer picture of the number of total employees and where they will work. “We don’t make any assumptions on anything, especially when you have an acquisition like that,” Staley said. “We all know that it will have an impact on this community.”OXY has a lot of real estate decisions to make.  The firm plans to sell the ConocoPhillips headquarters in the Energy Corridor, which it purchased a few months prior to the Anadarko acquisition, according to the Houston Chronicle. The original plan was to move to the vacant campus but OXY canceled that plan because the campus was not big enough for the combined company.  The 62-acre site went to market earlier this month, per the Chronicle. CBRE is expected to accept bids for about six weeks and target mixed-use developers, schools and universities.

For now, OXY plans to maintain its existing office presence in Greenway Plaza and The Woodlands. The firm could lease or sell The Woodlands towers in the future, but locals are optimistic it will stick around. “One thing we have found in The Woodlands market when people get here and are living here, they don’t really like leaving,” Colliers International co-Chairman and principal Bob Parsley said.

For more information on Houston office space, Houston retail space or Houston warehouse space and Houston industrial space, please call 713 782-0260 or see my web site at: www.houstonrealtyadvisors.com  Thank you for your interest.

Investor Admiral Capital resells the land under its new Addison office building.

Investors who just purchased an Addison office have already sold the deal – not the building, but the land under it.

New York-based Admiral Capital Group last week purchased the new Fourteen555 project – a 249,564-square-foot office building on the Dallas North Tollway.

The building was completed last year by developer Cawley Partners and is 95% leased to tenants including Occidental Chemical.

After closing the purchase, Admiral Capital, in turn, resold the land under the building to Woodbranch Investments Corp.

Admiral will continue to own and operate the building on a 99-year lease from Woodbranch Investments.

The investor in a similar transaction flipped the land under two Collin County buildings it purchased earlier this year to real estate investment trust Safehold Inc

It’s a way for the investor to capitalize the purchase and spread the cost over years of land lease payments, real estate brokers say.

New York Life Real Estate Investors, on behalf of New York Life Insurance Co., provided the ground lease financing for the latest Addison deal.

“We are pleased to provide this long-term financing which represents an attractive risk-adjusted return given the look-through value of the property,” Leslie Cassingham, Senior Director in New York Life Real Estate Investors’ Southwest Regional Office, said in a statement.

New York Life says it has done similar transactions with Woodbranch Investments.

Woodbranch is a private, Houston-based investment firm.

For more information on Houston office space, Houston retail space or Houston warehouse space and Houston industrial space, please call 713 782-0260 or see my web site at: www.houstonrealtyadvisors.com  Thank you for your interest.

Houston-based Stewart Information Services Corp. (NYSE: STC) and Jacksonville, Florida-based Fidelity National Financial Inc. (NYSE: FNF) have mutually agreed to cancel their merger agreement.