Houston CRE Performance Diverges by Sector

By Tucker, Michael | Mortgage Banking, January 2016 | Go to article overview

Houston CRE Performance Diverges by Sector


Tucker, Michael, Mortgage Banking


Houston's different commercial real estate (CRE) sectors are responding to the city's recent economic uncertainty in different ways, according to Transwestern, Houston.

The city--the largest in Texas and the fourth-largest in the United States--lost 4,000 energy-related jobs in 2015, and oil and gas companies continue to announce layoffs and spending cuts. Both oil prices and rig count fell again through the third quarter, down more than 50 percent from their 2014 peaks.

"Through the third quarter, Houston's commercial real estate market began to take pause as a downturn in the energy market caused a slowdown in the metro economy," said Transwestern Southwest President Kevin Roberts. "The office market is taking the hardest hit as energy-related companies trim costs and increase efficiencies in reaction to declining revenue and margins."

Roberts noted that the city's industrial sector remained healthy through the third quarter, but he expects it will soften. At the same time, "retail is booming across the metro," he said, "driven by high population growth and continued strong consumer demand."

Houston's office market began to falter as lower oil prices and economic uncertainty took a toll on fundamentals, Roberts said. "Leasing activity has slowed, and tenants with upcoming expirations are finding opportunities with changing market dynamics."

Office asking rents still trended upward but concessions grew significantly between July and September, Roberts said. "The landlord market of 2012 through 2014 has given way to a tenant-favorable environment, though leverage varies by numerous factors, including submarket and length of term," he said.

Houston industrial real estate remained strong in early 2015 but started to cool in the third quarter as lower oil prices hit the sector, Transwestern reported. …

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