Greenspoint’s Office Market Has Plenty Of Room And Low Rent, But Few Takers
Greenspoint occupies a prime location in Houston. It’s situated at the intersection of two major freeways, has access to the Hardy Toll Road and sits directly next to George Bush Intercontinental Airport, an important conduit for people and goods into the greater Houston area.
Despite this, office buildings in Greenspoint — or North Houston, according to rebranding efforts — have some of the highest vacancy rates in the city. The exit of multiple large office users over the last decade have left the submarket virtually half-empty, and brokers still don’t know when the tide is likely to change.
The North District/North Belt submarket has an office inventory of about 12.5M SF across 88 buildings. The direct vacancy rate was 41.9% at the end of Q1, while the total availability rate was 43.8%, according to Transwestern’s Q1 2021 office report.
Some commercial real estate brokerages estimate the vacancy rate is even higher. CBRE placed the direct vacancy rate at 45.5% during Q1, while JLL said direct vacancies reached 52.3% during the quarter.
Every brokerage has a slightly different way of drawing its submarket maps and calculating what square footage counts, but the office brokers that spoke to Bisnow agreed on one thing: Greenspoint is among the most challenged office submarkets in Houston.
The submarket suffered a major blow in 2018, when global energy firm Exxon Mobil completely moved out of the six-building Greenspoint Place complex to relocate to its 385-acre build-to-suit campus at Springwoods Village, roughly 12 miles north.
Exxon Mobil began moving out of Greenspoint Place as early as 2014, although its leases at the complex didn’t fully expire until 2018. When the oil giant left, it vacated about 2M SF of Class-A office space in the submarket.
The hit was compounded by similar exits over the last 10 years by Noble Energy, which left the area in 2012 for a new campus in northwest Houston, and Southwestern Energy, which moved into its new headquarters in Springwoods Village in 2015.
The exit of the three companies sent the vacancy rate soaring to almost 50%, and placed 3M SF of Class-A office space back on the market, according to Transwestern Executive Vice President Michelle Wogan — a hefty amount, considering that the North District/North Belt submarket has a total of 5.7M SF of Class-A space.
“There hasn't been that kind of exit in any other submarket, other than this submarket. And that's why it's the highest [vacancy rate],” Wogan said.
Trey Miller, a senior broker with Boxer Property, said that Greenspoint’s issues are a reflection of the trend of large tenants opting to move into build-to-suits, where the company can actually own and control the property. Boxer owns multiple office buildings in Greenspoint and also performs agency leasing assignments in the submarket.
“A lot of tenants that used to be in a larger multi-tenant building have gone that route, and now have their own facility — somewhere where they found cheap land five to 10 years ago. That’s been a trend,” Miller said.
With so much vacancy, North District/North Belt’s office rents are inevitably among the cheapest in the city. The average asking rate was $19.30 per SF during the first quarter, according to CBRE’s Q1 2021 office report. The Class-A average was $22.18 per SF, while Class-B averaged $17.91 per SF.
The listed asking rate for an office property is often higher than what actually ends up transacting in a deal. And right now, with so much vacancy in the submarket, the main priority for most landlords is simply getting tenants into buildings, according to Miller.
Most of Boxer’s buildings in North Houston cater to smaller tenants in the 5K to 10K SF range, which has proved helpful in leasing space, particularly during the coronavirus pandemic.
“I would think the majority of the leasing we've done in the last 24, 36 months has been like 10 to 12 bucks a foot. Basically giving it away, at least in the first year,” Miller said.
When it comes to building quality, Class-B office properties are more occupied than Class-A in the Greenspoint area. North District/North Belt Class-B buildings averaged a direct vacancy rate of 32.1% in Q1, while Class-A averaged 58.4%, according to Transwestern.
“I just really don't foresee that those buildings will ever recover at this point in time. I think those are going to be an afterthought, and people are going to focus on the better properties,” Wyatt said.
The major brokerages do not track the amount of Class-C and Class-D office space in the submarket, making it hard to pinpoint how much space is functionally obsolete.
Lincoln Property Co., in partnership with H.I.G. Realty Partners, acquired Greenspoint Place from Northwestern Mutual Life Insurance Co. in 2017. The property, newly vacated by Exxon Mobil, was still considered a prime Class-A asset in the submarket. Betting on its future, Lincoln rebranded the property to CityNorth and opted to pour tens of millions of dollars into upgrading the complex, including lobby refurbishments in two buildings, a luxury tenant lounge and an outdoor work-play area.
“We have put a lot of money into it, a lot of capital into it, and made it the No. 1 project in the area and probably one of the best projects in the city, as far as tenant amenities and quality of life that we offer here,” Wyatt said.
At the time of purchase, the six office buildings were about 30% leased. Lincoln decided to focus on leasing the three multi-tenant buildings on the property, and those efforts have ultimately paid off: The firm has leased around 500K SF of new space since it took over, and all three buildings are now approaching 80% occupancy, according to Wyatt.
The other three buildings — 250K SF, 340K SF and 450K SF, respectively —are still empty. Wyatt said Lincoln is saving those buildings for bigger tenant deals, although in April the company put the 250K SF CityNorth 1 building up for sale, listing an asking price of $25.4M.
Wyatt said that for Lincoln, the goal right now is to fill the CityNorth project up. But as long as there’s a high vacancy rate in the area, rent prices will continue to remain on the lower end.
“I think our project is going to do a majority of the leasing in this area, because it's not only a great value, but we offer things that nobody else offers in the city,” Wyatt said.
Lincoln’s efforts to upgrade CityNorth are the most ambitious in the submarket, but Miller cautioned that throwing money at a building to upgrade it may not automatically result in returns for every landlord in Greenspoint.
“There’s not any metric you can look at where, if you buy one of these vacant buildings, and put a bunch of money into it, [you’re definitely] going to see that return on your investment,” Miller said.
The most successful cases are likely to be users that opt to rent a building and pay for substantial upgrades, saving money on what would otherwise be a costly build-to-suit scenario.
“That's sort of a self-fulfilling prophecy. But that, sadly, is the only way I think you can make sense of amenitizing one of these buildings and spending capital and seeing a return,” Miller said.
Greenspoint is a desirable location for office and industrial users alike, but the area has struggled to overcome negative perceptions about crime and low-income housing for years.
In addition to her role at Transwestern, Wogan is chairman of the board for the North Houston District, which is the management district that oversees Greenspoint, Greens Crossing, Pinto Business Park and Airline Corridor. She told Bisnow that crime has been steadily dropping in the area over the past 10 years, thanks to the efforts of the district and the Houston Police Department.
In 2010, the North Houston District was ranked third in the city for the most violent crimes. By 2018, it had dropped to 19th place, according to statistics compiled by the North Houston District and based on HPD beat data. That coincided with HPD’s introduction of its North Belt Division in January 2018, which provided additional police services to the Greenspoint area.
“If you look at the whole city of Houston, we're not in the top 10 in terms of crime. So again, it's all perception,” Wogan said.
Perception is everything, which is why the Greenspoint District changed its name to the North Houston District in 2016. Wogan said it’s part of a effort by the district, brokers and property owners to refresh the area’s image and position it for future success. Similarly, Lincoln rebranded Greenspoint Place to CityNorth, in an attempt to distance the property from the Greenspoint name.
It’s unclear whether the renaming efforts have resulted in tangible improvements for the office market, but Wogan said she believes the area will eventually return to 90% office occupancy. It could take a while, however, as office demand is still limited across the city.
“It's just hard. But it's an opportunity for someone to consolidate and take a big block of space and get into a really nice facility for half the price of a Class-A building in another suburb,” Wogan said.