Houston's 2017 Forecast, Sector By Sector
2016 was a turning point for Houston. While we took a hit from low energy prices, the MSA never had negative job growth. With a tentative OPEC deal and a pipeline that's quickly draining, the recovery has begun. With data from Avison Young, Berkadia and Wulfe & Co, we forecast Houston's big four property types.
Thanks to continued deliveries, 2016's availability rate was at its highest point in two decades. Leasing activity is 20% below the typical annual average. The amount of sublease space is expected to continue rising as downsizing and M&A activity persist. The substantial vacancy will take years for Houston to digest. Direct asking rates will remain flat or negative, with landlords offering free rent and improved TI budget or rate abatement. The good news is the construction boom is nearly over, save for a few high-profile projects.
16,740 new apartment units, the majority of which will come online in the first half of the year, will be delivered in 2017, according to Berkadia data. Modest job growth is expected to push leasing activity higher than last year — Berkadia is projecting 13,500 units will be absorbed this year. Average asking rent will advance 1.9% in 2017, from $1,101 to $1,122.
New retail development is finally catching up with Houston's population boom. Focus has shifted to large mixed-use projects, marking a notable decline in neighborhood centers. The trend is expected to continue as Millennials and Baby Boomers shift towards live/work/play lifestyle centers. Wulfe & Co’s 24th annual retail survey projects 5M SF of new shopping center space will be built and opened in the greater Houston area in 2017.
Throughout the downturn, Houston's industrial market has maintained steady growth. The vacancy rate is still below historical standards. In 2016, asking rents remained relatively unchanged. New construction is expected to remain active in 2017, particularly in the southeast near the Port of Houston. The market should remain tight throughout 2017.