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Houston has consistently been among the fastest-growing markets in the nation, thanks to a combination of thoughtful master-planned communities, high-end build-to-rent neighborhoods and commercial shopping centers, and high-tech business parks, according to Daniel Reid, senior vice president of commercial banking in Texas for Western Alliance Bank, who calls Houston “an epicenter of growth.”
Attracting residents and businesses alike, the market has rebounded from the pandemic. Houston has recovered the jobs it lost in the pandemic and continued to grow, adding 6.3% more jobs, according to data released in May by the U.S. Bureau of Labor Statistics. The Greater Houston Partnership predicts that if the current pace holds, Houston could create more than 100,000 jobs this year alone, nearly 25% more than what the partnership originally forecast.
A lot of this is driven by businesses making Houston their home, Reid said. Hewlett Packard Enterprise recently celebrated the grand opening of its HQ, which moved to Houston from Silicon Valley. Greentown Labs has opened the first climate tech startup incubator. Collins Aerospace opened a new 120K SF facility at the Spaceport in Houston. Amazon has also continued to grow its presence in Houston, along with many other companies.
“While the good news abounds, there are several trends in market segments affecting the business landscape, particularly within the commercial real estate sector,” Reid said.
He laid out some of these trends in a discussion with Bisnow.
“Prior to the pandemic, Houston’s commercial real estate sector was strong, stable and poised for growth,” he said. “Despite emerging headwinds, an optimistic sentiment abounds, with several trends driving the sector forward.”
Workspaces Redefined
While work-from-home trends drove people away from commercial office spaces at the height of the pandemic, workforces are returning to the office, albeit slowly, as hybrid work becomes an increasingly appealing option to help bridge the gap.
“Current vacancy rates are hovering around 25%,” Reid said. “However, 2.2M SF of construction is currently underway. And while leasing is still down from pre-pandemic levels, transactions hit 2.1M SF in Q2 2022.”
Much of this is driven by companies rightsizing their offices post-pandemic, he said. This is creating opportunities for many companies to capitalize on vacancies and leasing opportunities or redefine their spaces into friendlier coworking areas.
“The bright side is that owners and developers are reimagining these available spaces,” Reid said. “Whether vacant or underpopulated, they are breathing new life into existing structures. In Downtown Houston, The Post is an excellent example of creative redevelopment that blends together work, entertainment and culture.”
Retail Relief
One sector most challenged by economic events has been retail. The National Retail Federation estimates that retail sales will grow between 6% and 8% this year, nearing more than $4.86T in 2022, which reflects the strength of the economy and consumer spending.
“It’s interesting to note that e-commerce has seen a steady uptick since 2020 as customers embrace the ease and convenience of click-based shopping from the comfort of their homes,” Reid said. “For businesses, that means a growing shift from investing in retail footprints to warehousing where inventory can be stored for quicker delivery.”
Another interesting development that Reid pointed out is the rise of developments that are more responsive to shoppers’ lifestyles, which has resulted in transitioning properties to a mixed-use format that positions retail, grocery, restaurants, multifamily and office to coexist within a new build or redevelopment.
The Growth Of Build-To-Rent
There has been a surge in build-to-rent developments, Reid said.
“Given challenges around meeting demand and affordability as both prices increase and mortgage rates inch up, purchasing is shifting to renting, which is resulting in more single-family rentals permeating the environment,” he said. “For the most part, developers like Amherst Residential and Outpost Residential are bringing fresh thinking and luxury living amenities to family-focused rental options while alleviating supply issues.”
All About LEED
In a town called the Energy Capital of the World where the oil and gas industry makes up half of all jobs, Houston’s development community is putting more focus than ever on sustainability, Reid said.
“As the ninth-highest-ranked LEED office market in the nation, Houston Green Building Council recently revealed that there are 650 LEED-certified buildings, with more than 203M SF in the city,” Reid said.
As sustainability and responsible development become increasingly important to the commercial real estate conversation, more companies are finding creative ways to decrease their carbon footprint, conserve critical resources and create healthier environments, all while increasing the city’s economic development impact.
“As the final quarter of 2022 dawns, there is confidence in the commercial real estate space,” Reid said. “Houston remains a city where people want to live, work and play. From its business-friendly environment to responsive and thoughtful growth plans, residents and the business community are driving the city forward.”
Western Alliance Bank is an Equal Housing Lender. For more information on Western Alliance’s capabilities in Texas, click here.
This article was produced in collaboration between Western Alliance Bank and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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