Tag Archives: Office Property

Houston apartment market will be tough in 2017 – ‘Hand to hand’ combat

Camden Property Trust, a real estate company that specializes in multi-family apartment complexes, with its head office in Greenway Plaza, made some interesting comments on its earnings call on the state of the Houston housing market in 2017.

They rate the Houston market as a ‘D’ as they expect same store revenues to decline 4% in 2017 (they declined 1.2% in 2016). Houston only produced 15,000 new jobs in 2016 and estimates are around 25,000-30,000 for this year. The problem is that another 10,000-12,000 new apartments are expected to open in 2017 (though that’s down from about 16,000 in 2016).

In the past, Camden has said that the rule of thing is that it takes 5,000 new jobs to absorb 1,000 new apartments. However in 2016, Houston absorbed 15,000 units on 15,000 new jobs. The CEO, Ric Campo, attributed this to new high-rise apartment complexes being built downtown, a product that didn’t really exist in the past. As a result, many sold their homes in the suburbs and moved to the urban core.

Regarding other markets in 2017 they rated them as follows;

Market Grade Outlook
Denver A Declining (30,000 jobs, 10,000 new apartments)
Phoenix A- Stable (50,000 jobs, 7,500 apartments)
Dallas A- Declining (70,000 jobs, 20,000 apartments)
Atlanta B+ Stable (53,000 jobs, 13,000 apartments)
Southern California B+ Stable (110,000 jobs, 28,000 apartments)
Raleigh B+ Stable (20,000 jobs, 5,000 apartments)
Orlando B+ Stable (38,000 jobs, 8,000 apartments)
Tampa B+ Declining (30,000 jobs, 6,000 apartments)
Washington, DC B Improving (70,000 jobs, 10,000 apartments)
South Florida B Stable (37,000 jobs, 10,000 apartments)
Austin B Declining (20,000 jobs, 8,000 apartments)
Charlotte B- Stable (30,000 jobs, 7,000 apartments)

The CEO alluded to the slacker economy in Austin (my words, not his). He said he had been surprised at the company’s revenue growth in Austin in the past two years, despite tepid reported jobs growth. He believes that the jobs growth may be under-reported and that ‘there’s a different category of folks that show up in Austin and find their way into the tech community and find jobs and pay rent in ways that may not be conventional’.

As an aside, Ric Campo, was also the chairman of the Houston Super Bowl Host Committee. The Super Bowl was held in Houston the past weekend and the logistical planning and execution of the event was superb, and reflected well on the city of Houston.


ConocoPhillips to vacate its campus HQ in West Houston

ConocoPhillips is moving its headquarters from here (1.4 million sq feet of office space on 62 acres in a campus style setting).


to here.


The HQ will move to the tower on the left (Energy Center Four – 600,000 sq feet) by the middle of 2018.  The two locations are less than a mile apart in west Houston.

The tower on the right (Energy Center Three) is also occupied by ConocoPhillips. The company originally pre-leased both towers (1.1 million sq feet) back in 2013 when the oil markets were booming. It originally put Energy Center Four up for sublease earlier this year without ever occupying it.

ConocoPhillips is still assessing what to do with its existing headquarters. According to the Harris County Appraisal District, the land is valued at $60 million and the buildings at $71 million.

From a financial perspective, the deal probably makes sense given there is 9 million sq feet of Class A office space available for sublease in Houston (25% vacancy rate in West Houston).  The damage was done when they decided to lease the space back in 2013. Note that when they leased Energy Center Three, they relocated staff from other offices in West Houston, much of which is still available for sub-lease. It is amazing to think that a large E&P company forgot that the oil industry is cyclical!

I wonder whether the employees at the head office are happy about the move. The campus location is idyllic but I suspect inefficient (especially with all the recent headcount reductions), the new location functional but probably a bit soulless.


Camden Property Trust comments on the Houston apartment market

In their earnings call on 28 Oct, Camden Property Trust CEO, Richard Campo, made some interesting comments on the Houston apartment market that has obviously been weighing down their results.

He stated that approximately 23,000 apartments have been added to the Houston market this year and a further 10,000 are planned for next year. Most have been added by merchant builders who don’t have any units pre-let before they started building. Houston is projected to add 10,000 – 20,000 jobs this year. At a ratio of 5:1 this amounts to a demand for approx 4,000 apartments at the top end of the range.

In the boom years of 2013 and 2014 Houston added over 125,000 jobs each year. Since that time the Energy business has let go approx 80,000 with new jobs being in Healthcare, Petrochemical construction and retail. Those jobs are not as high paying as the lost Energy jobs.

As a result he estimates that the 2016 new builds have an occupancy rate of 30 per cent at most. In recent weeks there has been a massive shift in the local market where the merchant builders are now offering three months’ free rental, up from two previously.

Mr Campo expects that 2017 will remain weak for Houston. In 2018 there will be a significant drop off in unit completions and with the energy job market expected to increase, 2018 should be a strong year of recovery.

Residential rental rates continue to fall

According to Axiometrics, residential rental rates in Houston dropped by 2.9% in August, primarily due to the Montrose/River Oaks area which dropped by 8%. August was the 5th straight month of rental declines.

Occupancy fell from 94.7 percent in August 2015 to 93.2 percent in August 2016. Axiometrics were surprised that the declines were not bigger given that the Houston market added almost 31,000 new properties in 2014 and 2015 and is projected to add 25,000 in 2016. Job growth in Houston was 5% in 2014 but negative in 2015 and 2016.

Nationally rents in August 2016 increased by 2.9 percent on the prior year, while the occupancy rate of 95.2 percent was slightly below the figure from a year ago (95.4 percent).


Houston office vacancy rate continues to climb

The overall office vacancy in Houston continues to climb. The overall vacancy rate is around 15% (depending upon which broker report you read). Today the Houston Business Journal confirmed that Freeport-McMoRan has put 474,000 sq feet of downtown office space  on the market.

Since 2000, the vacancy rates have varied from a low of around 11% in 2008 and late 2014 to 17% in early 2005 and 14% in early 20110. Obviously Houston has added a considerable amount of office space over that period. Given the huge burst of new office space added between 2012 and 2014 and the sharp fall in activity for the whole energy sector, I would expect the peak to be much higher than 17%.

Overall asking rents are beginning to fall. Class A rental rates are around $35 per sq ft, Class B around $21. Class A rental rates for sublease space are falling sharply and are now around $26. That discount of $9 is much higher than the long-term average discount of around $5.