Throughout the past 18 months of dropping, volatile oil prices, news headlines and street
speculation have centered on how Houston will fare with ‘lower for longer’ energy prices. The result is a mixed outlook for commercial real estate and reveals varying levels of opportunity in each sector.
- The office market is garnering the majority of the attention as most forecasting includes a softening market for the near term, concentrated in submarkets such as the CBD, the Energy Corridor and The Woodlands. Sublease space surges and climbing direct availability will be the main concern over the next three to four years.
- However, compensating for this softening is Houston’s industrial market and the resulting growth in Houston retail: industrial markets are buttressed by the health of the downstream and midstream petroleum sectors, while retail markets are benefiting from a disciplined construction pipeline and record population gains.
- High rates of return and low volatility in Houston’s retail market are attractive to investors, who will begin more aggressive expansion efforts attracting additional national big box and junior chains to the market.
- The multifamily sector is facing a split outlook dependent on the supply and demand dynamics at play within the Class A and B/C categories.
- Last, investment activity and cap rates should, on the whole, remain stable for the rest of the year. Varied outlooks for the individual sectors will mirror investor intentions; strong industrial and retail fundamentals will attract the most buyers and lenders, while a soft office market will cause apprehension.