Texas Real Estate Business

OCT 2017

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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https://vimeo.com/234001911 48 • October 2017 • Texas Real Estate Business www.REBusinessOnline.com A s more properties in Houston become accessible in the af- termath of Hurricane Harvey, commercial real estate firms are be- ginning the process of figuring out the full magnitude of the destruction. It will likely be a few more weeks before the full extent of the prop- erty damage throughout Houston is known. But the fortunes of certain classes of commercial real estate are already coming into focus. Metro Houston's industrial market, which according to CoStar Group has experienced positive net absorption for 10 consecutive quarters, appears to be an immediate beneficiary of the storm. With recovery and restoration projects now fully underway across the metro area, demand for construc- tion materials — wood, sheet rock, concrete — is set to rise. These prod- ucts will need to be stored in ware- houses and distributed throughout the metro area. This influx will likely put a dent in industrial vacancy, which rose from 5.3 percent to 5.6 percent between the first and second quarters. Rents for warehouse assets, which declined by 1 percent during the second quarter, should also rebound from the recov- ery effort. "On the industrial side, our people have seen a spiked level of demand that will result in more absorp- tion," says Tim Relyea, executive vice chairman of Cushman & Wake- field's Houston office. "Not just in the short term, but with regard to three- to five-year commitments from companies that have to be here to assist with the re- covery effort." Relyea adds that as of mid-Septem- ber, his firm is projecting a 5 to 10 per- cent increase in overall costs for reno- vation and restoration projects, as well as for new construction deals, before competition from material providers and subcontractors seeking a piece of the recovery pie re- stores prices to nor- mal levels. Steve Ash, man- aging senior vice president of Hous- ton-based Tran- swestern, notes that the widespread loss of residents' material goods, which will presum- ably need to be replaced, also bodes well for the industrial sector. "Industrial assets remain a bright spot in Houston," says Ash, whose firm manages and leases about 40 million square feet, mostly in office and industrial properties, throughout metro Houston. "With the expanding needs of service companies and the need for distribution of replaces and lost goods, the sector should remain fairly strong." Office Sector Takes A Hit On the flip side, office properties, particularly those in the southwest- ern submarkets and along the 50-mile Buffalo Bayou corridor, were hit hard, according to Neal Golden, Texas re- gional manager and vice chairman at Newmark Knight Frank (NKF). The company employs more than 100 peo- ple in Houston. "While exact numbers are not known, our research department has found that certain submarkets — Southwest, Greenspoint, Far West/ Katy — were ex- tremely impacted in terms of office damage," says Golden. "We are anticipating up to a 10 percent de- crease in vacant subleased space as firms look for space to house employ- ees who may have been displaced by building damage elsewhere." A recent report from NAI Partners' Houston office confirms these notions. The report found that out of 60 office properties surveyed along the Buffalo Bayou corridor, 25 were impacted by the flooding to some degree. An uptick in subleasing activ- ity may temporarily benefit an office market that has been plagued by three years of negative rent growth and a vacancy rate of 16 percent at the end of the second quarter. Since the beginning of the oil slump in late 2014, asking rents for Houston office properties have been about $3 per square foot below the national average, according to CoStar. During that stretch, the market has delivered more than 5 million square feet of new space per year on average. Ultimately, however, this subleas- ing activity is neither expected to in- crease beyond the recovery period. As such, it is not anticipated to have a long-term impact on absorption in the metro's office sector. And while a good chunk of Hous- ton's office-using tenants have re- sumed their regular business opera- tions, the fact remains that flooding is thought to have occurred across 30 percent of gross leasable commer- cial space throughout Houston. That translates to approximately $55 bil- lion in property damage, according to NKF's research. n "Your Gateway To The Capital Markets" Office: 682.518.9416 www.pioneerrealtycapital.com info@pioneerrealtycapital.com Competitive Rates Our number one goal is to pro- vide loans with the lowest rates and best terms possible. Multiple Options Unlike banks we offer more than once source of capital, we are not restricted by lending limits, client exposure, or geography. Certainty of Close For more than 14-years our clients have trusted us to close time-sensitive transactions rang- ing from 2Million to 30Million. $1.6MM $6.1MM RECENT CLOSINGS Shopping Center Acquisition Shopping Center Refinance Tim Relyea Cushman & Wakefield Steve Ash Transwestern Neal Golden Newmark Knight Frank INDUSTRIAL PROPERTIES POISED TO BENEFIT IN POST-HARVEY HOUSTON Demand for industrial properties in Houston is expected to be strong throughout the recovery period. By Taylor Williams

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