How a Texas-Based REIT Is Staying Resilient In The Lone Star State’s Office Markets
Before the coronavirus pandemic, Texas was experiencing an office leasing boom. Office rents in Central Texas reached an all-time high in Q1 2019, while Fort Worth became the third-fastest-growing U.S. job market in 2020. At the same time, tech companies were flooding the state as they searched for homes outside of Silicon Valley.
This past year, momentum slowed in the face of the pandemic, but things are starting to look up.
“Texas is pro-growth, which is what draws many businesses, including ours, to the state,” said Al Hartman, CEO of Hartman Income REIT, a Texas-based real estate investment trust that owns and operates 59 properties across Texas. “Our research shows people perform better in the office versus at home. They are more productive, have a better sense of camaraderie, and feel more connected to their co-workers. This will quickly lead more people to return to the office and attract them to the Texas market.”
The REIT’s plan to entice and retain office tenants includes new suite-style offerings, white-glove service and building improvements including technology to promote healthy air quality. Bisnow sat down with Hartman, Chief Investment Officer David Wheeler and Executive Vice President of Leasing Richard Maloof to learn more about their post-pandemic strategy and the future of the Texas office market.
Bisnow: Talk about the Texas economy. Why has it been a smart investment choice for Hartman as real estate investors?
Wheeler: We are in several different Texas markets and have benefited from working in a state with so many pro-growth characteristics. Texas is well-known for its oil, gas and chemical production but lesser known is how diverse our economy is here. There are many different industries that are flourishing in Texas, specifically manufacturing, healthcare and tech. Dallas, for example, employs over 370,000 tech workers and Houston has the highest percent of tech workers at non-tech firms in the country. This diverse and resilient economy is why corporate relocation trends are very favorable with firms like CBRE, HPE, Charles Schwab and Tesla.
Along with that, the state’s government is committed to keeping regulations and barriers to entry low, helping companies that invest and operate here thrive.
Bisnow: What trends are you seeing in the office market?
Hartman: Over the past several months, the first tenants to re-emerge into the marketplace have been smaller tenants, those who lease 1K to 5K SF of office space, while larger tenants have been hesitant. From a leasing perspective, the volume of space we leased in Q1 2021 exceeded the amount we leased in Q1 2020 before the pandemic. A lot of that volume has trended toward the smaller tenants and I expect that to continue as we move through 2021.
Coming out of the pandemic, people need flexible, affordable office space, which is why we’ve developed our sister company, BIZSUITES, which specializes in furnished turnkey office spaces that startups and small businesses can move into immediately. We are seeing a lot of demand from people looking to escape the distractions of home and who instead want to work from a professional office environment.
Bisnow: Post-pandemic, what is your strategy for leasing Hartman properties?
Maloof: We’re tracking metrics and trends tightly to give us an edge in this market. We are proactively repositioning vacancies and reconfiguring spaces where the market is demanding. We saw shorter-term deals last year but confidence is returning fast, and most leases are back to pre-pandemic terms.
Hartman: We work exceptionally hard to retain each of our tenants. Our tenants often tell us how happy they are with our tenant appreciation events and office touch-ups. To address tenant safety, we have installed clean air technology that is capable of neutralizing harmful particles in the air to limit the spread of viruses in our buildings.
Bisnow: Where do you see the Texas office market heading in the next few years?
Wheeler: The pandemic has been referred to as a trend accelerator. Coming into the pandemic, millennial workers were already looking for opportunities to move into more suburban environments. I think we’re going to see the continued migration of office workers from dense urban spaces to less dense areas. On a national level, this means more people will be moving from places like NYC to Houston or DFW. Data from the state tells us Texas has experienced an inflow of over 500,000 residents for seven years in a row. On a local level, people will be moving away from the urban cores of Texas cities and into more suburban areas.
As a result, offices will also have to move, and we’re monitoring that migration accordingly. We already have several offices in the more suburban areas of Houston and DFW and we’re offering several different iterations of our BIZSUITES locations in those neighborhoods. Between our various office pricing and service models, we have a solution for all businesses.
This feature was produced in collaboration between Studio B and Hartman. Bisnow news staff was not involved in the production of this content.
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