This Week's Houston Deal Sheet
Houston office leasing activity retreated in Q1 2023, and the deals that did close were largely examples of rightsizing, or taking less space than the tenant previously occupied, according to a new report from Savills.
Leasing fell by 28.7% in the first quarter compared to Q4 2022, the report shows, but it improved by 7.5% over Q1 2022 levels. Many Houston firms transacting space recalibrated their requirements, according to the report.
The fundamentals of leasing office space have changed, Savills Texas Region President Mark O’Donnell said. Companies are being much more conservative about the space they take up, rather than leasing excess space for growth, he said.
“It used to be if you had 100 people, a company might say, ‘We’re going to have a 15% carry vacancy rate,’ which means they’d add 15%, 15 vacancies,” O’Donnell said. “Now if you have 100 people, you might lease 15% less, or even 40% less seats than that.”
They’ll manage space around peak occupancy, which is around 60% depending on the industry, he said.
Among the largest transactions in Q1 was an expansion for Baylor College of Medicine. The medical school and research center committed to 114K SF of office and lab space at the Dynamic One building at TMC Helix Park, the report says.
Houston’s office market availability rate ticked down slightly from the previous quarter, and the average asking rental rate ticked up, coming in at 29.7% and $30.26 per SF, respectively.
Looking ahead, the report predicts more office property loan distress, as rising interest rates have put many owners underwater.
PEOPLE
Jason Johnson has been promoted to CEO of MetroNational, a Houston-based privately held real estate investment, development and management company best known for the 300-acre mixed-use Memorial City development.
Johnson’s grandfather founded MetroNational in 1954. The company owns and manages more than 10M SF of commercial properties, primarily in the Greater Houston area.
Johnson joined the family business in 2013 and has served as the company’s president and vice chairman since 2015. He took over the role of CEO from his father, Roy Johnson, on April 1. Roy Johnson now serves as executive chairman.
LEASES
Ocean Edge Services signed a 20K SF lease at 8430 North Sam Houston Parkway W in Houston.
Partners Real Estate’s Travis Land represented the landlord, 8430 North Belt LLC. Will Austin with Bridge Commercial Real Estate represented the tenant.
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Starbucks leased a 0.58-acre pad site in Northchase Plaza in North Houston from NewQuest Properties for a new build-to-suit location. NewQuest Properties created the pad from the only undeveloped land in Northchase Plaza, an 8.43-acre project at the intersection of FM 1960 West and Veterans Memorial Drive on Houston's north side.
The new Starbucks — 2K SF with a drive-through lane — is tentatively slated to open in the fall. Ryan Chandler and Lasater Miller of the Retail Connection represented Starbucks in the ground-lease talks.
Denmar Commercial Construction is the general contractor for Starbucks' build-to-suit. Ben Keillor, construction project manager for NewQuest, is overseeing the project. NewQuest’s Kevin Sims and Nick Ramsey represented the landlord.
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Star Stainless Screw Co. leased 12K SF at Silber Road Business Center 1 at 1234 Silber Road. Woody Hillyer and William Carpenter of Stream Realty Partners represented the landlord, DRA Advisors.
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La Cruderia Spring Branch leased a 3K SF freestanding restaurant at 7710 Long Point Drive in the Spring Branch area to open a second location of its Mexican restaurant. The original location for La Cruderia is at 8394 Bellaire Blvd. in southwest Houston.
The tenant was represented by restaurant real estate broker David Littwitz with Littwitz Investments Inc. The landlord, 7710 Long Point Realty Ltd., was represented by Simon Ha of Braun Enterprises.
After an extensive remodeling of the restaurant building, the new location of La Cruderia is planned to open in the late summer. The new restaurant will have a full bar, a large covered patio and a drive-thru lane.
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Partners Real Estate arranged a 14K SF sublease at 4555 Brittmoore Road. Partners’ Travis Land and Braedon Emde represented the sublessor, IA Manufacturing. The subtenant wasn't disclosed.
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Meyer Service Co. leased 54K SF at 10620 Needham St. Partners Real Estate’s Zane Carman and Clay Pritchett represented the landlord.
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Mattress Firm signed a 56K SF lease at the Reserve at Westchase, a 195K SF office building at 3250 Briarpark in Houston’s Westchase submarket, where it will relocate its headquarters. Mattress Firm moved to its “BEDquarters” at 10201 South Main St. in 2016.
The Class-A property is leased and managed by Transwestern’s Jack Scharnberg, John Heard and Cindy Ray.
Scharnberg represented the landlord, along with David Baker and Kristen Baker. Jon Lee and Brett Blanchard of CBRE represented the tenant.
The landlord built a new conference center and tenant lounge in tandem with the deal, according to Transwestern.
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SunHaven leased 39K SF at Cravens Crossing at 737 South Cravens Road. Garret Geaccone of Stream Realty Partners represented the landlord, PropNex Realty Group.
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Riteks leased 45.5K SF at Prologis Greens Parkway at 855 Greens Parkway. Jeremy Lumbreras and William Carpenter of Stream Realty Partners represented the landlord, Prologis.
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Five Below leased 8K SF of retail space in Fort Bend Town Center Phase 2, at the intersection of Texas Highway 6 and Fort Bend Tollway in Missouri City, from NewQuest Properties. Bob Conwell and Andrew Alvis of NewQuest Properties represented the landlord. Shireen Owlia of NewQuest Properties and Jeff Hayes, formerly with NewQuest, represented the tenant.
SALES
The Marcus & Millichap Lagos Retail Group arranged the sale of a freestanding net-leased Starbucks at 5353 FM 1960 E in Humble.
Payton Moore, Gus Lagos and Alex Wolansky had the exclusive listing to market the property and also procured the buyer, a private investor. The team closed the transaction within 50 days of listing the property.
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Partners Real Estate arranged the sale of an 11-unit multifamily property at 8814 Manus St. Partners’ Ryan DeGennaro represented the seller, Mell Investment Group. The buyer was undisclosed.
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Partners Real Estate arranged the sale of La Casita Homes, a 32-unit multifamily property at 3357-3359 Frick Road in Houston.
Partners’ Kamil Patel represented the seller, La Casita Homes LLC. The buyer was represented by Chad Proctor of Realty Austin.
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LNH3 purchased a 40K SF medical office/professional building on 3.4 acres at 4915 South Main St. in Stafford.
Partners Real Estate’s Chris Caudill and Devin Hawkins represented the seller, 8705 Partners Ltd. John Baddour of High Street Net Lease Group represented the buyer.
The buyer will renovate the property to lease out to medical office/office professional tenants.
THIS & THAT
The executive committee of Silver Star Properties REIT, formerly known as Hartman Short Term Income Properties XX, approved its repositioning plan to pivot the company’s assets into self-storage.
The board of directors also approved the acquisition of Southern Star Self-Storage Investment Co. and reached a three-year employment agreement with CEO Mark Torok as it solidifies its pivot away from office, retail and light industrial assets into self-storage.
The company operates a portfolio of nine properties comprising 321K net rentable SF spread across 2,526 units. Additionally, the company has two facilities totaling 208K SF and 703 units under contract that are expected to close by June 1. The facilities are predominantly in secondary and tertiary markets in Texas, Florida, North Carolina and Colorado.
CONSTRUCTION & DEVELOPMENT
Palmetto Pontikes, a partnership between Pontikes Development and McNair Interests, is breaking ground on two buildings at its Port 10 Logistics Center, a multimodal industrial park in Baytown. Building 3, a 451K SF rail-served facility, is set to be completed in Q3, and Building 5, a 179K SF cross-dock facility, is scheduled to deliver in Q4.
JLL’s Richard Quarles, Joseph Berwick, David Holland and Eliza Klein are handling the leasing on behalf of Palmetto Pontikes.
Building 3 has rail connectivity to the Union Pacific main line and direct access to UP's Coady Yard. A proposed 452K SF building pad site, Building 4 is adjacent to Building 3. Both buildings offer on-site truck, trailer, container and rail car storage capabilities, with storage-in-transit yard capacity of up to 2,000 rail cars, operated by Watco. Building 5 has direct access to the I-10 feeder road, accommodating users requiring 90K SF or more.
As a joint venture between Pontikes Development, Watco and McNair Interests, the Port 10 SIT Yard will provide off-site railway infrastructure for industrial tenants, allowing them to store empty and loaded rail cars with direct access to Buildings 3 and 4. This first phase of construction, which delivered in Q1 2023, includes off-site railway infrastructure with a capacity of up to 420 rail cars. The second phase will increase this capacity to an additional 1,200 rail cars.
