Real Estate Panelist Brandi McDonald: “Houston is the Place to Be”

by Houston Agent

Houston-based law firm BoyarMiller hosted its annual commercial real estate forum yesterday at the Houstonian Hotel. Covering all facets of the real estate industry, experts agree 2011 is looking up for Houston. As Brandi McDonald, managing director & senior vice president Tenant Advisory Services of Transwestern stated, “Houston is the place to be.”

Buildings in downtown Houston

Buildings in downtown Houston - courtesy Murat Taner/Corbis

The morning began with a presentation on land development and the housing industries from Joel Marshall, senior vice president of Trendmaker Development Company. Marshall reminded the audience that mortgage rates are at an all-time low and are expected to remain that way for the near future. “It’s a buyer’s market right now,” he said, citing that home listings continue to rise while closings stay flat. Marshall also added that Houston’s home depreciation rates are much lower than other major markets in the state. At –0.05 percent, Houston’s home prices should remain constant, compared to Dallas, where home prices are depreciating at -1.45 percent, and San Antonio, the highest in the state, with a depreciation rate of -3.58 percent.

Like rising housing starts, Welcome W. Wilson, Jr., president and CEO of GSL Welcome Group, reported that industrial projects are also on the rise. Wilson explained that industrial market vacancies are down from last year and Houston’s vacancy rate is in better shape than the majority of the country, measuring just below 6 percent compared to a national average of 9% at the end of the third quarter, 2010.

Wilson cited optimistic industrial sales transactions in 2010, with 13 industrial sales transactions since January 1, totaling $75.5 million, while 15 sales in 2009 only totaled $26.5 million. Of those transactions, making up the 2010 increase, are furniture retailers, who are occupying a larger percentage of Houston industrial space inventory. Also contributing to the positive forecast in the industrial market is activity at the Port of Houston (PoH), which reported trade of $154.4 billion in the first nine months of 2010, up 26.8 percent from the same 9-month period last year. Wilson stated the PoH is poised to do even better as the new Panama Canal locks are completed, giving larger ships a gateway to ports on the southern and eastern side of the U.S., including Houston.

Looking to the retail markets in 2011, Ewing King, Principal of Read King Commercial Real Estate predicted that “Houston’s strong, long-term outlook is expected to continue attracting retailers seeking to expand market share in one of the fastest growing metro areas in the U.S.” Detailing this outlook are retail occupancy rates, which are the highest that they’ve been since 2005, at 92.2 percent, led by inner loop properties. Also impacting the market are rental rates, which had bottomed out and are gradually climbing again.

Rounding out the forecast with a snapshot of the office market, McDonald stated, “Houston is in a relatively strong position…the bottom of the market is behind us but the next peak is outside visual range. It’s hard to predict when it’s going to spike again.”

The biggest challenge McDonald predicted for the coming year is rental rates, with most expected to continue trending downward. An analysis of all submarkets indicated class A rates have fallen in by $2.00 per square foot in the Central Business District, $2.50 in Greenway Plaza, $1.50 in Energy Corridor and $1.00 in the West Loop. Class A rates are expected to gradually trend down in class A product in the Far Northwest and Greenspoint, while the Westchase District is expected to remain stable.

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