Downtown Houston’s Recovery Will Be Slow Until Majority Of Office Workers, Events Return

Downtown Houston’s usual bustle of activity has been missing since March. In the earliest days of the coronavirus pandemic, nearly all sporting events and conventions were canceled, retail and restaurants shuttered, and office workers went remote.

Seven months later, the situation has improved, but remains far from normal.

“I would just say that there's been no other submarket more impacted by COVID than downtown. You go to other submarkets, you see a lot more activity, I think, in the buildings,” Transwestern Senior Vice President Tyler Garrett said during a Bisnow webinar Oct. 8.

“The whole summer of single-digit occupancies downtown was not the same in other submarkets. That's a function of the larger companies being down there.”

At the end of July, Central Houston President Bob Eury told Bisnow that office occupancy in Downtown Houston was at less than 10%. That percentage has increased over the past few months, according to Brookfield Properties Executive Vice President Travis Overall.

“We're starting to see these larger companies come back. In some of our buildings, our occupancy is starting to push 40%, which is not where we'd like it. But it is significantly better than it was, say 45 days ago or 60 days ago,” Overall said. Brookfield Properties owns several major Downtown Houston buildings, including Houston Center, LyondellBasell Tower, Allen Center and Total Plaza.

“Starting on Labor Day, I guess in that week, we have seen a pretty significant return of many companies back to the office, and it's being done in phases. And the tenants that I talked to, they are planning a significant ramp-up through this month and the end of the year.”

Though office occupancy remains far lower than usual, Overall said office rent collections in Downtown Houston have remained strong during the pandemic, reflecting the caliber of the tenants in the submarket. Retail tenants are having a more difficult time.

“We've been very fortunate in that we have a very good tenant base that's stable, we've collected over 95% of our scheduled rents throughout this time period. So that's very encouraging,” Overall said. “Obviously, our retail tenants are struggling quite a bit. And they're probably the most challenged for us.”

Transwestern also leases a Class-A portfolio in Downtown Houston, and Garrett noted most of its office tenants have been able to keep up with rent, but ancillary retail amenities in those buildings have been struggling.

For Tracy Vaught, owner of H-Town Restaurant Group, the pandemic has been hugely disruptive. Her restaurant in Downtown Houston, Xochi, was closed for six and a half months and only reopened on Oct. 1.

“That's like opening a new restaurant. You lost your employees, your product, everything,” Vaught said. “I would say it's been worst-case scenario, devastating, very difficult.”

Between the lack of sporting events, conventions, theater events and concerts, and regular office worker foot traffic, Vaught said her business is looking at diversifying its offerings.

“I would say that our group is looking at diversifying, because we feel like we got hit pretty hard. And maybe we want to do some retail business with food, sell in a grocery store. Right now we're selling at H-E-B, but that's a temporary thing. So we're looking at that and at some other things, just so we're not caught again, and [do] not get clobbered again,” Vaught said.

Houston First acting President and CEO Michael Heckman said that with so many people working remotely, business travel has dried up, which is hurting the hotel industry.

“From a hotel perspective, the downtown hotels have been hit the hardest across the city,” Heckman said. “There's not a lot of reason for business travel, if the person that you would come to see is in their living room.”

Heckman said there won't be many meetings or conventions for the rest of the calendar year, but future convention bookings at George R. Brown Convention Center are looking robust. He told Bisnow in August that many trade associations and industry groups have already committed to other locations in 2021 or 2022, but are looking at Houston for the next available year.

“We just signed a huge corporate convention here for 2024, '25 and '26, one of the biggest pieces of business that we've signed in recent years. So once we get through the pandemic, we continue to believe that downtown will be very strong,” Heckman said.

In addition to overseeing the George R. Brown Convention Center, Houston First owns the adjacent Hilton Americas-Houston Hotel. Heckman said that to date, the company has rebooked 92% of total room nights for future years.

“It's not right away, but it is into the future,” Heckman said.

Vaught said another economic stimulus bill with funds for small businesses, as well as relaxing forgiveness rules for the first round of the Paycheck Protection Program, will help her company survive. Other temporary measures, like allowing alcohol to be served to go, should also be made permanent.

Ultimately, making it safe and attractive for people to return to Downtown Houston will have the biggest positive effect on retail, restaurant and hotel operators.

“We need people back in their offices. And we need some kind of a plan to get conventions, more conventions, safely,” Vaught said.