Southern Texas Real Estate Sizzles
Southern Texas melds influences from both Mexico and the United States, creating a mélange of tastes and senses. From five-alarm chili to the calm waters of the Gulf of Mexico, this region offers a multitude of experiences for every preference.
The real estate market in southern Texas, represented by Houston, San Antonio, and Corpus Christi, reflects this mixture of opportunities with many choices for investors, building owners, and tenants. Due to the flourishing economy, the commercial real estate market in this region looks healthy and prosperous.
The industrial real estate market in Houston “continues to be very strong, with vigorous activity in the north and northwest,” according to Brad Marnitz, CCIM, of NAI Partners Commercial. Lease rates in this area range from 35 cents per square foot to 45 cents psf monthly for distribution space and from 50 cents psf to 75 cents psf monthly for service centers. Sales prices gradually are increasing, with “metal buildings running $15 psf to $25 psf and tilt wall running $25 psf to $40 psf,” Marnitz says.
In 1998 and 1999, approximately 1.5 million square feet of speculative industrial space was added to the Houston market, contributing to a slow but steadily increasing absorption rate. The glut of new space also has contributed to a lower occupancy rate, which averages around 85 percent, Marnitz says.
Fred Caldwell, CCIM, SIOR, of Caldwell Watson Real Estate Group, says that the industrial real estate market in Houston “should remain very consistent.” He reports that new spec construction continues in the southwest region of the city and in the George Bush Intercontinental Airport area. The approximately 65,000 new jobs created in Houston in 2000 should help “drive demand for five to six million sf of space,” Caldwell says.
“Leasing velocity in a city like San Antonio is generally slow and deliberate,” says Todd A. Gold, CCIM, of Mission City Properties, yet this trend hasn't stopped lease rates from skyrocketing in this city. On average, lease rates in San Antonio have increased 32 cents psf since 1999, which can be attributed to tight class B and C markets. Sales prices have stabilized over the past few years, with prices ranging from $40 psf to more than $100 psf, Gold says.
Both spec and build-to-suit construction appear to be slowing in San Antonio after three years of heavy expansion, according to Gold. He predicts an increasing demand for “flex space and lower-cost office alternatives,” as well as “growing opportunity for medical office space in the far north central office market.”
The 2000 Landauer Real Estate Market Forecast named Houston the fourth top office market in the United States. Recently, this city's office market has experienced an “expansion mode,” reports Jamie M. Barry, CCIM, of Bank United. After several years of high vacancy rates, both absorption and sales prices have started to increase. Development momentum is strong in the central business district, spurred by a 1.2 million-sf, build-to-suit office tower leased entirely by Enron, the new Enron Field, home of the Houston Astros, and a rapidly growing residential base. “Downtown office space with retail and residential in one location” is popular, Barry says.
Due to a flat economy, the retail real estate market in Corpus Christi is only “fairly moderate,” yet “the outlook is optimistic,” says Joe Adame, CCIM, SIOR, CRE, of Joe Adame & Associates. Steve Roberts, CCIM, CIPS, of Steve Roberts Realty Associates agrees. Only build-to-suit construction is occurring, he says, mainly for free-standing drugstores, fast-food chains, restaurants, and convenience stores. One reason for the lack of new construction, Roberts says, is the heavy turnover in power centers and neighborhood shopping centers.
Despite the lack of construction, both lease rates and sales prices are up from previous years, Adame says. Lease rates range from $12 psf to $22 psf annually, and sales prices average around $40 psf. The occupancy rate also is increasing due to a lack of high-quality space, Adame says.
Unlike its southern neighbor, San Antonio is experiencing a “robust expansion in retail development” due to growth in jobs, personal income, and population, according to Eldon Roalson, CCIM, of Roalson Interests. “Considerable new development is occurring,” he says, the main factor being a one million-sf shopping center called the Forum under construction in northeast San Antonio.
Occupancy rates average around 90 percent citywide and have increased steadily since the mid-1990s. Sales prices also are rising: “A sampling of shopping centers sold in 2000 showed prices ranging from $45 psf to $166 psf,” Roalson says. He expects continued expansion of the retail real estate market in San Antonio.
Multifamily Maintains Momentum
The multifamily real estate market in Houston continues to hold steady, says Paul McDonald, CCIM, of Paul S. McDonald & Associates. The occupancy rate is low, yet higher than the 1999 rate, with the class B market at approximately 94 percent. Lease rates average around $1 psf for class A space, 77 cents psf for class B space, and 56 cents psf for class C space, according to McDonald, and rates are expected to increase due to personal income and population growth. About 2000 new spec units currently are under construction, he says.
The San Antonio multifamily real estate market also remains stable, says Susan Choice, CCIM, CPM, of First Choice Management Group. The year 2000 saw the “highest construction since the mid-80s,” she says, with 3,782 class A units added to the market in northern regions of the city with lease rates that average around 90 cents psf. This new construction has caused a dip in San Antonio's multifamily occupancy rate, which, at about 93 percent, is down 1 percent from 1999. Average sales prices per unit increased 8.6 percent from $31,958 per unit in 1999 to $34,978 in 2000, she says.
San Antonio will experience “continued building in high-end, target-specific product with growing need for moderately priced housing,” Choice predicts. However, the market will soften somewhat due to the glut of new construction in class A product, she says.
With a low unemployment rate, Cincinnati should continue to see economic expansion and brisk job growth in the coming years. “A diverse economy, high worker productivity, outstanding air service, and extraordinary quality of life,” are responsible for Cincinnati's strength, says Greg Vollman, CCIM, of Grubb & Ellis/West Shell Commercial.
Jeff Dilbone, CCIM, of Investment Property Advisors reports that the multifamily occupancy rate is slightly higher than last year at approximately 96 percent. Renters and buyers are looking for “properties with garages connected to the unit, units wired for high-speed Internet access, and other high-end lifestyle amenities,” he says.
“Suburban Cincinnati has seen approximately 1.8 million square feet of new speculative office space” in the past year, according to Richard P. Meder, CCIM, SIOR, of Grubb & Ellis/West Shell Commercial, while the downtown area should see more activity in two years as riverfront redevelopment is completed. Class A lease rates in the central business district range from $20 per square foot to $24 psf annually, Meder says.
“Cincinnati is moving toward another record year of gross absorption,” says Jeff Bender, CCIM, SIOR, of CB Richard Ellis. The industrial occupancy rate has held steady around 94 percent for the past few years, as have sales prices and lease rates. Bender predicts that the industrial market should remain strong for the next three years, but that “good land sites at reasonable prices are becoming scarce in established submarkets,” which will lead to sprawl.
Cincinnati's retail real estate market is a battle zone, reports Louis J. Peerless, CCIM, of Peerless Real Estate Co., as home-improvement giants (Lowe's Home Improvement Warehouse and Home Depot), deep discount stores (Costco and Sams), and drugstores (CVS and Walgreens) vie for prime retail sites. Lease rates generally are stable at $16 psf to $20 psf, he says, and the occupancy rate is healthy.