The Case for West Houston — A Long-Term View
Over 80 percent of the office space in the energy corridor is Class A space, providing first-rate work environments for highly sought after new employees.
In spite of the “noise” created by headlines about low oil prices and energy industry layoffs, west Houston, home to several of the world’s largest energy companies, continues to have strong fundamentals based on decades of phenomenal growth and high-quality development.
At Wolff Companies, we have been investing in West Houston for over 45 years. From this long-term perspective, we remain bullish on Houston and, in particular, West Houston, where continuing favorable demographic and economic trends tell a different story than the current headlines.
West Houston is a city unto itself. With a population of 1.7 million, it would rank as the fifth largest city in the United States — ahead of Philadelphia, Phoenix or Dallas. It has its own downtown, or central business district (CBD), comprised of four major activity centers: CityCentre/Memorial City, Westchase, The Energy Corridor and Westway Park.
All of these are within a few minutes of the intersection of Interstate 10 and the Sam Houston Tollway/Beltway 8. This intersection is also the current statistical center of Houston’s population distribution, a focal point which is expected to continue to move westward to the intersection of I-10 and Barker Cypress Road by 2025.
Despite the cyclical nature of the energy industry, west Houston has experienced explosive growth over the past four decades. Since 1970, the area’s population has increased tenfold and employment has increased by a factor of thirty. West Houston’s CBD is now the largest employment concentration in the metropolitan area, surpassing Houston’s historic downtown.
More impressive than the quantity of west Houston’s growth is the quality. The population of West Houston is the most educated in the region. While 40 percent of Houston’s population lives within a 30-minute commute of west Houston’s CBD, over 50 percent of the city’s architects and engineers live within the same area.
This population is attracted to the region because of high-quality jobs at world-class companies such as BP, Conoco, Phillips 66, Sysco, Gulf States Toyota and six major medical complexes; superior housing in master-planned communities such as Cinco Ranch, Cross Creek Ranch and Bridgeland; and excellent public schools in the Katy, Fort Bend and Cypress-Fairbanks independent school districts.
These strong fundamentals are supported by exceptional infrastructure and amenities. In 2008, the reconstructed I-10 West opened. The freeway now spans 26 lanes, including four interior managed lanes and service lanes. Houston’s third loop — the Grand Parkway — now runs through the middle of west Houston all the way from U.S. 59 South to U.S. 59 North.
These freeways are complemented by new bus routes, multiple park-and-ride lots and new major thoroughfares, including the soon-to-be completed Park Row, which runs parallel to I-10 from Dairy Ashford Road to the City of Katy. The area boasts world-class shopping in CityCentre and Memorial City, as well as excellent outlet shopping at Houston Premium Outlets and Katy Mills Mall.
Houston’s premier healthcare institutions all have full-service hospitals in west Houston, including Memorial Hermann in Memorial City, and Houston Methodist and Texas Children’s in Wolff Cos.’ Texas Medical Center — West Campus. These will soon be joined by The University of Texas MD Anderson Cancer Center’s newest treatment center in Wolff Cos.’ Central Park.
The region is also home to tens of thousands of acres of parks and permanent open space, anchored by the 12,000-acre George Bush Park (Barker Reservoir) and 14,000-acre Addicks-Cullen Park.
Office Boom in Perspective
From 2010 to 2015, West Houston added 10.6 million square feet of office space to a base of 47.1 million square feet — an increase of 22.6 percent. While this growth seems incredible, even more astonishing was the total net absorption of 9.5 million square feet over the same period.
Almost all of the newly constructed office space in the area has been occupied without significantly cannibalizing the older inventory in the region.
In 2016, much ado has been made about the amount of sub-lease space that has become available in west Houston. Regardless, in the first half of 2016, the market absorbed almost 175,000 square feet, net. While leasing activity has certainly slowed, some companies are looking at the current market as an opportunity to relocate to or upgrade in west Houston.
Examples include Air Liquide, which relocated from the Galleria area to 597,000 square feet in Memorial City; BASF, which consolidated three Houston area offices into 110,000 square feet in Mac Haik’s Energy Tower IV; and Shell, which recently completed 672,000 square feet of new office space in its energy corridor campus to consolidate operations from downtown and other locations.
The Present and Future
Inventory under construction has declined significantly to 716,000 square feet in the second quarter of 2016 from a peak of over five million square feet in the third quarter of 2014. This adjustment will foster a healthier equilibrium as we start 2017.
We also believe that older buildings left vacant as companies upgrade their office space will provide excellent redevelopment opportunities in the next cycle, because much of that vacant space is obsolete. True green-field development sites in and near west Houston’s CBD, such as the remaining parcels in Wolff Cos.’ Central Park, are now rare, as the majority of vacant acreage has been developed in the last five years.
Sectors of the market that are less dependent on the price of energy have continued to build in west Houston, invigorated by the long-term demographic picture. In the past five years, over 2.2 million square feet of retail space has been constructed in response to tremendous residential growth.
In Wolff Cos.’ Ten Oaks development, Hunington Properties has broken ground on a shopping center that includes a free-standing quick-service restaurant and 20,000 square feet of general retail space. Vista Equities Group recently completed the second phase of LaCenterra at Cinco Ranch, providing residents of west Houston numerous additional shopping and dining options.
The hotel market has also been strong. Also in Wolff Cos.’ Ten Oaks, Western International has opened a Courtyard by Marriott and is nearing completion of a Hampton Inn & Suites by Hilton, both 135-room hotels. There are now over 8,200 hotel rooms in west Houston’s CBD.
And lastly, the healthcare sector continues to enjoy robust activity in the area. In the energy corridor alone, investments by major Houston hospitals will soon surpass $1 billion.
Adding to its current $425-million facility, Houston Methodist — West Campus has started construction on a $170-million tower that will open in 2018.
Next door, Texas Children’s Hospital — West Campus is currently investing another $50 million in its $243-million plant to increase the number of patients it can accommodate and raise the level of services it can provide. And a few miles away in Wolff Cos.’ Central Park, MD Anderson has broken ground on a $169-million, 260,000-square-foot outpatient diagnostic and treatment center.
All of this development points to strong fundamentals and a promising future for west Houston.
The infrastructure, amenities and, most importantly, the people who call west Houston home have created a foundation for the region that will foster long-term, high-quality growth. Wolff Cos.’ has invested in west Houston for over 45 years and anticipates compelling investment opportunities to continue for years to come.
— By Carolyn Wolff Dorros, vice president, and David W. Hightower, executive vice president and chief development officer, of Wolff Cos. This article originally appeared in the November 2016 issue of Texas Real Estate Business.