In Houston, rents have increased year-over-year significantly in all properties except for multifamily. As a result, the average cost per square foot for Houston commercial real estate has increased across most properties, especially retail and industrial spaces.
Commercial real estate costs per square foot are projected to rise again in the next few months due to increased lease activity, reduced demand from investors, and rising prices putting further stress on new developments and investment projects.
General Market Overview
By the end of 2022, Houston’s economy had rebounded from the effects of the COVID-19 outbreak.
Rents rose by 2.5 percent, and the average price per square foot increased by 3 percent.
The Houston office market experienced the most robust rent increases, rising by 3.5 percent.
Both the industrial and retail sectors grew at an annual rate of around 3%.
Multifamily rents increased by 3.0 percent in Q2 2022 compared to Q1. Multifamily rentals typically cost between $1,000 and $2,500 per monthly unit.
The Houston commercial real estate market is expected to rebound in the second half of 2022.
Houston’s Office Prices Rose
Houston’s real estate markets saw positive results in the second half of 2022. Office rent prices rose by 3.5%, and the average price per square foot increased by two percent.
- Vacancy rates fell slightly, from 17.5% to 17.3%.
- The most tightly packed markets were Downtown, with a vacancy of 10.4 percent, and Westchase, at 11.6 percent.
- The most significant sublease space available was at Greenpoint, with 3.2 million square feet available.
- The highest rent prices increased in the CBD, which rose by 3.6% during the year.
Suburban markets experienced modest growth, with average rent increases averaging 0.9%.
Houston’s Retail Market Was Also Positive
The second quarter of 2022 was vital for the Houston retail market.
On average, rents increased by 3.5%, and the average price per square foot was about $22.50 per square foot.
The market is projected to continue growing throughout the rest of 2022, with an estimated 5% growth in average rent prices and an increased average cost per square foot (CPSF).
Houston’s Industrial/Warehouse Market Continues to Grow
Houston, Texas’s industrial/warehouse market, also had a solid second quarter in 2022.
- Rent prices increased by 3%, and the average price per square foot was approximately $13.00.
- With rents predicted to increase by 2% throughout the rest of the year, the rental sector is expected to be stable.
The average cost per square foot is also expected to increase by the end of the year.
Non-residential Construction Forecast (Dollars and Floor Space)
Construction activity in Houston will continue to be strong through the end of this fiscal quarter and into the next fiscal quarter.
- Construction activity for non-residential buildings is expected to rise at an annual rate of 4.0 percent in 2022 after increasing at an average pace of 5.5 percent annually in 2021.
- The office and industrial sectors are projected to be the fastest-growing sector, followed by the retail sector.
Commercial floor space under construction is projected to increase annually by 3.0 percent through 2022.
Average Cost Per Square Foot Trends
During the second half of 2022, the average price per square foot of commercial property in Houston, Texas, increased by 3.5 percent.
Commercial real estate prices continued their upward trajectory in Q2, increasing by 2.1% compared to the previous year.
We expect this to continue to be an ongoing trend for the foreseeable future.
Office space in Houston costs an average of $32.50 per square foot.
Summary by Class
During the second half of 2022, the Houston office sector performed on par with the retail industry and outperformed the industrial/warehousing sectors.
Rents for office space increased by 3.5%, while warehouse/industrial space rents increased by 3%.
The average cost per square foot for commercial real estate in Houston was $32, while the average price for retail and warehouse spaces was $22 and $13, respectively.
As the economy continues to improve, companies are increasingly looking for ways to expand their operations into new markets and regions.
The impact of uptown development in Houston
Uptown development has had an enormous impact on the city of Houston.
The plan is to revitalize an old neighborhood by building new housing and retail space. It’s expected to bring in new businesses and increase property values.
The average cost per sq ft of commercial realty in Houston, TX, has increased by 5 percent since the start of the building. As a result, the Houston realty markets are expected to continue growing steadily through 2022.
Here are some takeaways for Houston commercial real estate investors
Commercial real estate (CRE) in Houston, TX, has been having an excellent year so far:
- Retail rents in Houston increased during the second quarter of 2022
- During this period, the average cost per square foot for commercial property also rose.
- Despite these increases, there is still room for investment opportunities shortly.
We expect inflationary pressures and increasing interest rates to slow down some of this expansion in the coming months. Still, Houston’s economy is poised for more explosive growth as more companies move here from elsewhere.