Job Growth and the Grand Parkway Impact Houston Real Estate Trends Say Experts at the BoyarMiller Real Estate Forum

Positive outlook for real estate sectors predicted for 2014

BoyarMiller Real Estate Breakfast Forum 2014

HOUSTON (Dec. 16, 2013) – Houston’s strong economic performance and the extension of the Grand Parkway were among the most popular topics delivered by real estate experts at the BoyarMiller Real Estate Forum, hosted recently to review forecasts in land development, retail, office, mixed-use, multi-family and the industrial real estate markets. Growth in Houston continues to be strong in the west with high concentration north of Interstate-10, as well as expansion in and around the Port of Houston, according to the panel. But there are a number of real estate hotspots throughout the city as identified by panelists Will Holder, President of Trendmaker Homes; Jay Sears, Managing Partner of NewQuest Properties; Jonathan Brinsden, President and CEO of Midway; and Welcome Wilson Jr., President and CEO of Welcome Group. The group addressed more than 250 real estate industry leaders who gathered to learn about the real estate transformations under way in Houston.

Jobs driving home demand

“Master-planned communities are evolving as available lots in older communities close out and new leaders emerge,” said Will Holder of Trendmaker. “Since 2009, the city has been absorbing more lots than we are delivering with a 10,000 lot gap every year. That activity is coming from job demand, which drives home sales; not low interest rates. Three jobs equate to one new house start.”

Holder cited three key trends in Houston’s home and multi-family real estate market. Historically, the developer community is the prime deliverer of home lots. Now that is evolving with more builder-owned land. There are 10,000 acres of builder land in the city and 20,000 acres owned by developers reflecting a longer outlook on deals, said Holder.

Another trend is the repurposing of land to accommodate housing needs. As an example, Holder cited one lot in the city’s museum district that is being developed into four multi-level high-end houses of different elevations. In the north part of Houston, a community is being developed with these types of houses clustered with amenities attractive to potential buyers.

The last trend impacting the home-buying market are high rent rates, which have exceeded the cost of buying a home because of high demand and lack of supply. “There are over 70,000 future lots in Houston including 50,000-plus lots in raw land,” said Holder.  “Our healthy market drives quality products and Houston offers the best value in the country for a new home.”

Retail follows residential

Jay Sears of NewQuest Properties said growth in the retail real estate market follows residential growth, and it’s strong. The retail sector is struggling to keep up with growth in the city and experiencing very low vacancy and default rates, a welcome sign after the rough years of 2008 and 2011.

“The Grand Parkway is a game-changer and the Katy area is now the fasting growing community in the U.S.,” said Sears. “New development in that community is driving retail with grocers leading the way. We are seeing new grocers coming to the market and some that are moving to the suburbs for the first time.”

Sears said that retail supports one in four U.S. jobs and that 70 percent of the economy is based on retail consumption. He addressed the impact of online sales on retailers.

“Online sales amount to six percent of all retail sales,” said Sears. “It makes consumers smarter, so that means the online presence helps good retailers and good restaurants become better retailers and restaurants.”

There are about 15 new shopping centers planned or under way in Houston and Sears remained optimistic that the retail market will continue to grow in support of residential development.

Office space leased in advance

The office real estate sector is also strong in Houston and Jonathan Brinsden of Midway addressed the evolving needs of the workforce.

“The office worker is different and that is changing the office product being developed,” he said. “Driven by the energy sector where one direct energy job produces four other jobs, the office landscape is changing to a campus style that addresses both the type of work being done and the generational changes of the workforce.”

There are 11.5 million sq. ft. of office space under construction in Houston and 74 percent of it is pre-leased; a “fantastic” ratio, said Brinsden. There are nine million square feet of development around the Grand Parkway addressing the growing needs in the Energy Corridor. The city’s six core office markets are rising or peaking, and Brinsden predicted it may lead to further office development around the city.

With Houston’s new standing as a third coast gateway market, capital is available yet disciplined for office development investment. “Right now, everyone wants to build in Houston but we don’t want to get in a position of overdevelopment,” said Brinsden. “At our current 12 percent vacancy rate, the market will be okay. We just don’t want to see a position of mostly spec space.”

Houston excels as a paragon city

Dubbing Houston a “paragon city,” Welcome Wilson Jr. of GSL Welcome Group touted the strength of the city’s recovery from the recession and its benefit to the industrial real estate market.

“Houston has added two jobs for each one it lost during the recession,” said Wilson. “We are the leading machine in the country with an industrial market of 521 million sq. ft. and more than five million sq. ft. under construction.

“The vacancy rate of industrial space is about five percent, which is the same as last year even though the city has added more space,” said Wilson. “That is better than the national average of eight percent and we predict vacancies will decline in 2014.”

Wilson agreed that the Grand Parkway completion is a catalyst for new industrial development in the city and added that activity in two other areas will continue to fuel new projects.

“The 2015 completion of the Panama Canal expansion will result in more job growth and activity at the Port of Houston and will stimulate development of industrial construction, rail and infrastructure,” said Wilson. “Additionally, the agreement between ExxonMobil and Qatar Petroleum to construct a $10 billion natural gas export terminal at Sabine Pass will bring about more construction and need for crane-ready buildings.”

Wilson summed up his presentation with a very promising outlook for Houston’s industrial market.

The panelists expressed overall optimism about the state of the real estate industry in the city and the industry’s prospects in the coming year. As all four of the panelists agreed, it’s a great time to be in Houston.

View the presentations from the BoyarMiller Real Estate Forum.