Woodlands office market seeks rebound from oil and gas downturn, surplus space

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A high availability of office space in The Woodlands area due to the oil and gas downturn and new developments being completed has resulted in a tenant’s market. 

At the end of 2016, there was about 1.8 million square feet of vacant space in The Woodlands area on the market and a 12 percent vacancy rate, according to data from Colliers International.

“The net reality is, there is a significant amount of available space in the market right now,” said Jeff Beard, president of Woodlands-based J. Beard Real Estate Co. “If we were in the Galleria, downtown or near Westchase, that would mean nothing because the market is so large. But [in The Woodlands] it means we have a high availability rate.”

Woodlands office market seeks rebound from oil and gas downturn, surplus spaceVacancy factors

The rise in availability can be attributed to a flattening in demand for new office space and a combination of new buildings coming online, said Paul Layne, executive vice president for The Woodlands Development Company.

“In a slower economy—like Houston has been in due to the drop in oil prices—many companies have chosen to renew in their location rather than branch out and expand,” he said.

The oil and gas downturn, which began in late 2014, resulted in the downsizing of office space over the past two years as companies laid off employees; nearly 80,000 oil-related jobs have been lost in Houston since the downturn began.

“The oil and energy companies take up the majority of the office space, so when you have a contraction like we’ve had with oil prices, it’s a natural reaction to have the oil companies trim down,” said OJ Bobek, director of commercial real estate for Keller Williams in The Woodlands.

Before the oil and gas downturn began, oil at $100 a barrel was a major driver for a variety of industries in the Greater Houston area, including medical and commercial, said Ross Foldetta, founder and principal of Foldetta Commercial, a commercial real estate firm in The Woodlands.

“Whether we like it or not, the Greater Houston area is still very driven by the oil and gas economy,” he said. “However, developers had a practical level of reasoning to think opportunistically when new office product was originally planned and started.”

The addition of new office buildings over the past several years in Town Center, Hughes Landing and Lakeside has also affected the amount of square footage on the market, Beard said.

“Because of the new construction, I think it skews the numbers a little so that vacancy is higher than some other submarkets [in the Houston area],” he said. “But rental rates are some of the highest in the city, and that’s an indication it’s a desired market.”

There are three newly constructed speculative buildings on the periphery of The Woodlands with low occupancy numbers, Foldetta said.

“That’s a considerable amount of our office vacancy,” he said. “I think you’ll see these buildings will lag behind what [The Woodlands and Springwoods Village] experience for successfully landing major companies.”

Subleasing has also become more prevalent during the downturn as companies find themselves no longer in need of as much or any office space, Bobek said.

“Say I’m an oil company and I can’t use my space anymore, so I give it to a broker,” he said. “Now I bring that space to the marketplace, so we not only have new space, but sublease space. The current tenant is still paying on that space, so his incentive is to reduce his rent to have a more attractive tenant to take his space.”

Although there is a large availability of office space on the market in The Woodlands, the area is still faring better than other parts of Houston, real estate brokers said.

“It’s a more consistent, high-quality area to [work] and live in, and because of those things, historically we have stayed substantially better than Houston overall,” Layne said.

Tenant advantages, amenities

In terms of new office spaces, landlords have to get creative during a downturn if they want to lease properties, Bobek said.

“They have to offer tenant improvements, maybe free rent, or drop some of their rates to get more competitive with subleases,” he said.

Tenant incentives are tied to supply and demand, which means incentives typically increase when there is more supply than demand, Layne said.

“It’s what’s referred to as a tenant’s market,” Beard said.

Newly opened office spaces in The Woodlands also have new amenities not seen before to cater to new tenants, such as 3 Hughes Landing, which is in available for new tenants.

The space offers a number of amenities for tenants not typically found in the workplace, such as a boat dock, a fitness center and showers, a conference center and a lounge area. In addition, the parking garage will feature bicycle and kayak storage so tenants can bike, jog or row to work, Layne said.

“We’re trying to push a completely different lifestyle opportunity,” he said.

Just south of The Woodlands in Springwoods Village, there is a lot of leasing activity occurring; HP announced plans for a 12-acre campus in January. It will house 2,400 employees when it opens next year, according to Patrinely Group, the developer of CityPlace in Springwoods Village.

“That transportation amenity [Springwoods Village] has as an influence factor has clearly shown to be relevant,” Foldetta said. “They’re effectively at the hub of the Grand Parkway, Hardy Toll Road and I-45. They have transportation connectors others can’t replicate.”

Woodlands office market seeks rebound from oil and gas downturn, surplus spaceNew office development is still taking place on the west side of The Woodlands as well. Construction began in February on The Offices at Dry Creek, an office condominium project located a quarter-mile from the May Valley neighborhood.

The first model units will be complete this summer, featuring private, front-door walk-up entrances and surface-level parking.

“Unique to these modern office condominiums is smart office technology, which offers high-tech options such as fiber-optic cable to provide lightning-speed connectivity,” Sales Director Lewis Walker said.

Moving forward

Although it may take three or four years for the office market to fully recover from the downturn, Bobek said the demand in the coming months will most likely be for smaller office spaces in The Woodlands area.

“I think you’re going to see, on any new or existing space, most of the landlords or sublessors will break down spaces into smaller space sizes,” he said. “The demand for 20,000 square feet and multiple floors isn’t there anymore. Now there is a demand for smaller spaces anywhere between 2,000 and 10,000 square feet.”

Foldetta said the non-Class A office market will probably see the most traction in the next several months.

However, it is unclear how long it will take ultimately to absorb the vacancies in the local market, he said.

“That’s one of the key questions,” he said.

Layne said he is optimistic about 2017 and the recovery for businesses in Houston and The Woodlands that will create additional growth and stability.

“I think we’ll see a strong uptick in leasing as companies believe Houston is coming out of the down cycle,” he said. “We’ll begin to grow again, thereby [causing companies to take] more space and [be] more optimistic to move to higher-quality office buildings.”

Beard said he expects to see a firming of rental rates this year along with more leasing activity, which means more absorption of empty space.

“I think we’ve maybe bottomed out at peak availability, and I see those things improving,” he said. “Our activity in the first two months [of 2017] has been extraordinary.”

The current market state should place companies in a position to pick and choose what they want, Bobek said.

“Everyone was shell-shocked in the past two years,” he said. “The bleeding may be over, but the healing isn’t.”

Terrie Smith with Foldetta Commercial Represented Several Clients Opening in 2017

Terrie SmithRETAIL:

• CoCo’s Crepes – Has signed a Lease at Indian Springs Retail Center, The Woodlands, TX and is scheduled to open the 2nd Qtr. 2017.

• My Gym – is scheduled to open a 2nd location at The Colonnade of Atascocita Shopping Center in the 2nd Qtr. 2017.

• Board & Brush – The Franchisee opened their fi rst location near the corner of FM 1488 and FM 2978, Montgomery, TX in December 2016 and is currently planning their 2nd location to open the 3rd Qtr. 2017.

• Virtual Math Solutions – The Franchisee opened their fi rst location in January 2017 at 24913 Kuykendahl, Tomball, TX near The Woodlands, TX with plans to open additional locations in 2018.

OFFICE:

• Portfolio Hospitality – Opening a Woodlands offi ce at 2829 Technology Forest which is scheduled to open 1st Qtr. 2017.

INDUSTRIAL:

• Air Drilling – Air Drilling relocated their offi ce to 1970 Starpoint Drive the 1st Qtr. 2017.

LAND:

• The sale of .93 acres on Hwy 242, Conroe, TX closed Qtr. 4 2016.

Armadillo Escape Room Adventures

Article was originally published: |   Posted Jan. at 3:33 am

 

What we reported: In October, Armadillo Escape Room Adventures opened in Old Town Spring, offering adventures to those who enjoy interactive problem-solving game experiences. Participants are given a set of puzzles or tasks that will enable the players to escape from the room.

The latest: Armadillo Escape Room Adventures has hosted more parties, gatherings and corporate events since it opened. “We are most excited about creating a place where people could go and have fun with family and friends that was different,” co-owner Brittany Mscisz said.

What’s next: The facility owners plan to offer a third room with a submarine theme, where the crew is prompted by an event that threatens to sink the submarine, and participants have to rescue the crew and the submarine.

417 Gentry St., Stes. E-F
Spring • 832-592-7645
www.armadilloescaperoom.com

This story is one update from The January Issue. View the full list of 6 notable business openings here.

Read Full Article Here

Houston’s real estate sector isn’t in too much trouble — yet

Loan delinquency rates are still at comforting lows.

December 7, 2016 Updated: December 7, 2016 10:59am

There hasn’t been much good news for Houston’s real estate sector in recent months, with the oil-fueled building wave crashing onto the rocks of a price collapse.

Office vacancy rates now stand at 17.1 percent, according to the most recent reportfrom Colliers. Marcus & Millichap expects apartment vacancies to rise to 7 percent by the end of the year, up from 5.8 percent in the third quarter. Hotel revenues per available rooms have been declining, as new facilities come online, with fewer business travelers to fill them.

Read Full Article Here

Swing Zone Indoor Golf and Sports Bar

Swing Zone Indoor Golf and Sports Bar

Swing Zone, a new indoor golf center and sports bar, represented by Terrie Smith with Foldetta Commercial Real Estate will be opening in February, 2017 at 24036 Kuykendahl Road in Tomball, TX.

The locally owned and managed business brings cutting-edge golf simulators to North Houston for training, practice and recreation. Featuring the most innovative and accurate golf simulators on the market, players of all skill levels will have a realistic golf experience with 3D graphics, various play modes, instant feedback and detailed swing analysis. This unique golf venue allows golfers to play at courses all over the world while enjoying the comfort and flexibility of golfing indoors.

Lessons for adults and kids will be offered and taught by an on-staff PGA certified professional. The upscale venue will also have large screen TV’s for game watching, golf challenges and leagues, a full service bar and high quality food.

For more information, please visit www.swingzonegolf.com.