HOUSTON, Dec. 20, 2016 /PRNewswire/ -- While the declining oil prices of the past two years have negatively impacted Houston's office market, the city's retail and industrial real estate sectors remain strong, according to three industry experts sharing their perspectives at the BoyarMiller Real Estate annual breakfast forum Dec. 13.
Allen Crosswell, managing principal of NewQuest Crosswell, Jonathan Brinsden, CEO of Midway, and John Nicholson, executive vice president of Avera Companies, addressed an influential business audience on the commercial real estate trends to expect in 2017.
"Fortunately, the economic diversification already in place in Houston will help with the recovery of the office market and we will continue to enjoy healthy activity in the retail and industrial sectors," said Chris Hanslik, chairman of BoyarMiller. "We also heard that e-commerce activity may catch up with the retail sector at some point. These trends provide valuable insights for our attendees as they consider the effect on their businesses."
Retail market resists energy and e-commerce impact
"The retail market has been resistant to the oil cloud and the outlook is positive," said Crosswell. "There has been significant financial funding for retail construction, so e-commerce has not affected the retail sector too much, yet."
Crosswell said that online and mobile continue to be leading areas of growth for retailers as savvy shoppers buy online and pick up in-store.
"We are seeing innovation among retailers on ways to deliver value as many consumers move to online shopping," said Crosswell. "It will eventually affect all retailers so they must get smarter as e-commerce continues to grow."
Crosswell told the group that the U.S. Department of Commerce announced that Q3 2016 e-commerce sales increased 15.6 percent and healthy sales are expected for the holiday season.
"Locally, retail growth has been strong in the Katy area anchored by superstores and grocers," said Crosswell. "Retailers continue to follow population growth and rents have climbed. Overall, I remain bullish on the retail business."
Office market sees struggles ahead
Midway's Brinsden shared several trends impacting the office market in general, in addition to the oversupply of inventory caused by the negative impact of the oil industry downturn.
"While amenities and connectivity are still important, employers are evaluating space as a tool and they are demanding more flexible lease terms to allow for business adjustments," said Brinsden. "We are also seeing more traditional companies moving into co-working environments that used to be considered for the creative class of employers. With the new ways businesses are evaluating their space, we will see some rapid obsolence of some existing product on the market."
Brinsden described Houston's office market as "falling" with negative absorption rates expected until 2019.
"Houston has a 20 percent office vacancy rate and eight percent of it is sublease space," said Brinsden. "About a third of the Energy Corridor is sublease space right now and all of this inventory results in downward pressure on landlords."
Mixed-use projects are the exception to what is occuring in Houston's office market because of the connectivity and amenities these projects provide.
"Mixed-use offers protection from the downside," said Brinsden.
The Golden Goose
Industrial real estate has been steady and rental rates should stay flat through 2017 and vacancy rates will remain at about six percent, said Nicholson of Avera Companies.
"The Port of Houston is the golden goose of the industrial market and will be in demand moving forward. However, there is lack of available land sites on the south side of the channel and that opens up opportunities for Baytown," said Nicholson. "Baytown has available land, dual service with rail and land access, and lots of incentives right now."
Houston ranks number 10 of the top U.S. industrial markets based on absorption since the recession. "Everyone in e-commerce is chasing the Amazon distribution model which seems to be the way of the future," said Nicholson. "I think we may see more deals in Houston's north and northwest markets that will improve vacancy in that quadrant. Overall, expect a healthy industrial market for 2017."
To view the presentations from the BoyarMiller Real Estate Forum visit www.boyarmiller.com.
BoyarMiller is a 25-year-old Houston-based law firm comprised of two practice groups: business and litigation. The business group serves multinational companies, middle-market businesses and entrepreneurs in need of collaborative and strategic representation. The litigation group represents organizations of all sizes, from entrepreneurs to Fortune 500 companies, seeking to resolve complex business issues and employment disputes. See www.boyarmiller.com for more information.
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