Cy-Fair Edition - May 2020

REAL ESTATE

“[SUBURBANMARKETS] HAVE DONE AGOOD JOBAT CONTROLLING THEIR SUPPLY. THEY MIGHT HAVE A LITTLE BETTEROF A CHANCE AT CONTROLLING THAT VACANCYNUMBER BECAUSE THEIR SUPPLYWON’T GET AS OUT OFWHACK.” JOE BRIGHT, SENIOR ASSOCIATE, NAI PARTNERS coronavirus pandemic could result in more people taking advantage of coworking opportunities. “From all the reports I’ve seen, this is the largest stay-at-home experience we’ve ever done, globally,” she said. “I think it’s going to allow a lot of employers to apply the work-from- home schedule to their employees, especially when you’re talking about a company that is located downtown with employees who live in the suburbs. Many of them are going to learn that people don’t need to be under their managers’ noses to be productive.” The Work Well, located at Hwy. 6 and Hwy. 290 in Cy-Fair, has remained open throughout the coronavirus but has restricted day passes and walk-in guests, Stewart said. The space has seen declines in coworking and con- ference roommemberships over the course of the pandemic, but Stewart said the company waived late fees for April and May. “We’re remaining positive about potential opportunities,” she said. “When this is all said and done, people are going to want access to that collaborative environment that’s needed for success and growth.”

Expert: Suburban areas could see fewer officemarket struggles

BY SHAWN ARRAJJ

Galleria and downtown Houston also being watched closely, Bright said. Suburban markets—such as Cypress, The Woodlands and Sugar Land— could fare better, he said. “[Those markets] have done a good job at controlling their supply,” he said. “They might have a little better of a chance at controlling that vacancy number because their supply won’t get as out of whack.” An analysis by Caldwell Cos. of list- ings from the real estate information company CoStar showed the vacancy rate in the Cy-Fair area to be at 19% as of April 3. Two office buildings are under construction in the Cy-Fair area as of April 3, totaling 85,000 square feet. In NAI’s office market report for the first quarter of 2020 in Houston, vacancy rates in the FM 1960/Hwy. 249 submarket climbed slightly to 24%, up from 23.7% at the end of 2019. The vacancy rate in the overall Houston area sat at 21.5% in the first quarter, according to NAI. One possible upside to the current turmoil is the potential for older Class B office buildings to be redeveloped, Bright said, though he cautioned it was too early to say for sure the extent to which that could happen. Buildings that struggle to maintain an occupancy rate between 50%-75% are

The ongoing coronavirus pandemic and the recent plunge in oil prices are both expected to have adverse effects on the Houston-area office market over the course of 2020, including an increase in vacancy rates and a slow- down of new construction, according to local analysts. Around 400,000 people in the Greater Houston area filed for unemployment in March and April, compared to 27,000 people over the same time frame in 2019, according to estimates from the Greater Houston Partnership. The office market was already seeing rising vacancy rates and availability numbers prior to the COVID-19 pandemic, said Joe Bright, a senior associate with the office tenant representation division of the commercial real estate services firm NAI Partners. “We were already soft,” Bright said. “We expect, for at least the rest of this year, those vacancy and avail- ability numbers to continue to go up. It’s difficult to peg where the market will really end up because it’s hard to say just how low landlords will get to get deals done.” The office market in Houston’s Energy Corridor is expected to be among the hardest hit, with the

among those that could be redevel- oped, he said. “Even before all this happened, our vacancy numbers were enough that when you compared them to the overall unemployment ... it didn’t seem like there were enough office workers in our city to meet the supply of office space,” he said. “That said, it’s easier said than done to redevelop or repurpose an office building.” Shifting landscapes When it comes to long-term leasing projections, Bright said he thinks things will break even in terms of the overall square footage companies are leasing. However, he said some companies could start to re-evaluate how that square footage is used. “I think you’ll probably see com- panies move away from being really dense,” Bright said. “You’ll see more spacing [and] probably more private offices. I think you’ll see more workers working from home in some capacity. They might be able to get away with having less people in their office but more square footage per person.” Miranda Stewart, general manager of the coworking space The Work Well, said the long-term effects of the

Office vacancy rates have fluctuated in the Cy-Fair area preceding the coronavirus pandemic. As of April, rates were still lower than more urban submarkets. MARKET SNAPSHOT

CY-FAIR OFFI CE VACANCY RATE

CY-FAIR OFFI CE RENTAL RATES (annual per square foot)

HOUSTON AREA OFFI CE DATA (first-quarter 2020)

20%

$20

Houston market total Vacancy rate: 21.5%

Rental rate: $29.33 per square foot

19.2% 19.4% 19.6% 19.8%

$19.2 $19.4 $19.6 $19.8

$19.32

$18.79

Central Business District

19%

$19

Rental rate: $39.34

Energy Corridor Vacancy rate: 24.6% Vacancy rate: 25.9%

19%

18.2% 18.4% 18.6% 18.8%

$18.2 $18.4 $18.6 $18.8

18.1%

18%

$18

Rental rate: $29.07

0%

$0

Aug. 2019

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

Aug. 2019

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

2020

2020

SOURCE: A CALDWELL COMPANIES ANALYSIS OF COSTAR DATA/COMMUNITY IMPACT NEWSPAPER

SOURCE: NAI PARTNERS/COMMUNITY IMPACT NEWSPAPER

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CY-FAIR EDITION • MAY 2020

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