ICOnic News | Real Estate Market...Hot or Not? | Mar 2023
REAL ESTATE MARKET...HOT OR NOT?
Last month was the 30th anniversary of the CCIM Forecast Competition. This annual event brings in brokers from all specialties to discuss the state of the market and make projections for the upcoming year. This year was no different and there were many key takeaways from each product type.
RETAIL demand in the Houston market is extremely strong. So strong, that good spaces are hard to find because new retail space is not being built fast enough to keep up with demand, partially due to construction cost increases. Challenges in retail right now are speed of permitting, supply chain delaying materials and construction costs. Construction costs are now up 75% over 2020 pre-pandemic pricing. Retail tenants are also demanding 50-100% higher tenant build-out allowances. The Houston retail market is almost the highest per square foot, per capita in the US, behind Charlotte, North Carolina. Houston is now a core or flagship market and almost every retail sector is in expansion mode in 2023 so the Houston retail market is poised for a strong year in 2023.
MULTI-FAMILY is still strong, but a large stack of institutional buyer multi-family deals closed in 2022, so expect fewer deals to transact in 2023. On a positive note, the bid vs. ask spread is narrowing in 2023, which allows for a healthier market. Homebuilders continue deliver build-to-rent homes in direct competition with multi-family apartments. Suburban land sellers are still holding prices while urban and in-fill land sellers are lowering expectations some. Debt pricing is tough for multi-family, so borrowers are looking more to Freddie Mac or Fannie Mae to keep their cost of capital down or another bridge financing solution to cover today’s high borrowing costs instead of traditional capital market debt providers.
OFFICE submarkets in the Houston Market are the hottest in Westchase, Memorial City, Energy Corridor, and the Inner Loop. Office owners are also getting more comfortable to take risks on buildings in suburban submarkets, largely due to larger pockets of newer buildings with fewer functionally obsolescent challenges. Office tenants are flocking to buildings built between 2015-2022 because they want well-located office space in buildings with the latest amenities near a wide variety of food options, fitness facilities and walkable areas. This is putting continued pressure on office buildings built before 2014 which will continue to struggle in 2023. Fewer office buildings will sell in 2023 than sold in 2022 and many suspect the percent of distressed office building sales will outweigh traditional sales.
INDUSTRIAL market demand in Houston is exceptionally strong, but is slowing and will return to pre-pandemic levels soon. Similar to the retail market, Houston industrial looks like it will have a space problem soon, as we will run out of good industrial space when today’s new construction ends in 18 months. Rent increases have doubled from 2020 to 2023 as available inventory has been absorbed and owners have raised lease rates. Industrial lease rates have doubled from 2020 until 2023 and may continue increasing. Speed-to-market wins deals in 2023, and landowners still holding to 2022 land prices, the easy to develop, well-located land tracts are almost gone. The Houston industrial market will do well in 2023, but 2024 may not be the same story.
-Lang Motes, CCIM - Managing Partner and Land Advisor
SPORTING CLAYS - MORE THAN JUST A HOBBY!
ICO Commercial's broker Costa Bajjali’s favorite hobby is shooting Sporting Clays. To Costa and his entire family, Sporting Clays is more than just a hobby, it’s a family affair.
Sporting Clays is the sport of breaking a round orange disc target, of various sizes, thrown by spring-loaded trap machine, setup in various formats, on different stations, using a shotgun. Unlike its sister sports Trap or Skeet, which uses standardized distances, target angles and target sizes, Sporting Clays offers the variety of target formats that require using different methods or skills, at many stations with varying levels of difficulties.
What makes the Bajjalis love the sport the most are the people they meet from different parts of the city, state, country, and world. While Costa shoots recreationally, his kids shoot competitively in local, state, and national events. His son Blake, who is on the Texas A&M Shooting Team, was also on Team USA and represented the United States in World Competition in FITASC in 2020. His daughter Chelsea, who is in high school, is now a Master Class Shooter, after winning several tournaments and advancing to Master Class.
Sporting Clays allows the Bajjalis, and other shooting families, to spend time together on road trips several times a year. The family time together is amazing and is something that will continue, even after the kids are on their own. Sporting Clays is truly a lifelong sport, and you often find all ages, ranging from 8 to 80+, enjoying the sport. It is not unusual to see three generations of the same family traveling and shooting together at tournaments.
The Bajjalis are members of Greater Houston Sports Club, and you often find the entire family at the club on Friday afternoons or on the weekends, getting ready for the next big competition.
