Q2 2022 Commercial Real Estate Market Report: Houston, TX
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The Houston commercial real estate market saw significantly positive performance in the second quarter of 2022, compared to Q1 2022.
Rents have risen significantly year-over-year in all property types except multifamily; the average cost per square foot of Houston commercial real estate has also risen across most property types, especially retail space and industrial property space.
Costs per square foot are expected to continue to rise again in coming quarters due to increased leasing activity, slowing capital markets, and inflationary pressures adding stress to new CRE developments and investments.
General Market Overview
In the second quarter of 2022, the Houston commercial real estate market continued to rebound from the COVID-19 pandemic.
Average rents increased by 2.5%, and the average cost per square foot increased by 3%.
The Houston office market saw the strongest growth, with rents increasing by 3.5%.
The industrial and retail markets also saw positive growth, with rents increasing by 3% and 3.5%, respectively.
The multifamily market saw a 3.0% increase in rent in Q2 2022 from Q1. Average multifamily rental rate sits at about $1,250 per month.
Overall, the Houston commercial real estate market is expected to continue to rebound in the second half of 2022.
Houston’s Office Market’s Rents Rise Alongside Tight Submarkets
Houston’s office market posted positive results in the second quarter of 2022. Office rents grew by 3.5% and the average cost per square foot increased by 2.3%.
- The vacancy rate declined slightly, from 17.4% to 17.2%.
- The tightest submarkets were Downtown, which had a vacancy rate of 10.4%, and Westchase, with a vacancy rate of 11.6%.
- The largest sublease availability was in Greenspoint, with 3.1 million square feet available.
- The strongest growth was seen in the CBD, where rents increased by 3.6%.
The suburban markets saw more modest growth, with average rents increasing by 0.9%.
Houston’s Retail Market Posts a Positive Quarter
The second quarter of 2022 was a strong one for Houston’s retail market.
Average rents grew by 3.5%, and the average cost per square foot rose to about $22.50.
The market is expected to continue to grow in the second half of the year, with an estimated 5% growth in average rents and an increase in the average cost per square foot.
Houston’s Industrial/Warehouse Market Continues to Grow
The industrial/warehouse market in Houston, Texas also had a strong second quarter in 2022.
- Rents grew by 3% and the average cost per square foot was about $13.00.
- The market is expected to remain strong for the rest of the year with rents forecasted to grow by 2%.
The average cost per square foot is expected to increase as well by the end of the year.
Non-residential Construction Forecast (Dollars and Floor Space)
Non-residential construction activity in Houston is expected to remain strong through the end of 2022.
- The value of non-residential construction put in place is forecast to grow by 4.0% in 2022, following a 5.5% increase in 2021.
- The office and industrial sectors are expected to see the largest gains in activity, while the lodging and retail sectors are expected to see more modest growth.
The amount of commercial floor space under construction is also expected to grow, rising by 3.0% in 2022 after increasing by 5.5% in 2021.
Residential Construction Forecast (Dollars and Floor Space)
The Houston residential construction market is forecast to continue its expansion in the second quarter of 2022, with an estimated value of $4.6 billion and total floor space of 8.9 million square feet.
This is an increase of 7% and 11%, respectively, over the first quarter of 2022.
The majority of the growth is expected to be in the single-family sector, which is forecast to grow by 9% in value and 13% in floor space.
The multifamily sector is also expected to see some growth, albeit at a slower pace than the single-family sector, with an estimated value increase of 5% and floor space growth of 8%.
Average Cost Per Square Foot Trends
In the second quarter of 2022, the average cost per square foot of commercial real estate in Houston, Texas grew by 3.5%.
This is a continuation of the trend we saw in the first quarter of the year when commercial rents in Houston increased by 2.1%.
We expect this trend to continue for the rest of the year, albeit at a more moderate pace, as businesses continue to move into the city and demand for office space increases alongside inflationary pressures and slowing capital markets.
The average cost per square foot for office space in Houston is now about $32.50.
Trend Summary by Class: Office vs. Retail vs. Industrial/Warehouse
In the second quarter of 2022, the Houston office market performed on par with the retail market and outperformed the industrial/warehouse markets.
Office and retail rents grew by 3.5%, while industrial/warehouse rents grew by 3%.
The average cost per square foot for office space in Houston was $32.50, while the average cost per square foot for retail and industrial/warehouse space was $22.50 and $13.00, respectively.
The market is expected to continue to grow in the second half of the year as businesses diversify their supply chains and expand their operations in and to Houston.
Impact of Uptown Development in Houston
Uptown development is having a profound impact on the city of Houston.
The project is revitalizing the area and bringing in new businesses and jobs. The increased foot traffic is also driving up commercial rents in the area.
The average cost per square foot of commercial real estate in Houston, Texas has increased by 5% since the project began. The market is expected to continue to grow at a steady pace for the rest of 2022.
Takeaways for Houston Commercial Real Estate Investors
Commercial real estate in Houston, Texas has had a banger year so far:
- Commercial rents in Houston increased in the second quarter of 2022.
- The average cost per square foot of commercial real estate also increased during this time period.
- Despite these increases, the market is still forecasted to be favorable for investors for the rest of 2022.
While we expect inflationary pressures and rising interest rates to moderate some of this growth in coming quarters, Houston’s market is poised for more exponential growth as more businesses relocate to and expand within Texas.
Always do your research, stay diligent, and happy investing.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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