Kyle Drake, Drake Realty Group
This year, Forbes listed Houston as the fastest growing city in America, which is no surprise considering its 4.5 percent year-over-year job growth rate. Having created 667,800 new jobs and counting since 2005, Forbes considers Houston an economic powerhouse.
Professionals old and new are drawn to the city not only for its positive economy, but for its diverse demographic and cultural scene.
Due to the growing population, there is a demand for multifamily and mixed-use properties, and although the city has current concerns about dynamics and pricing of the oil and gas industry, there are several Houston submarkets that have been more resilient than others and continue to be ripe for development: The Galleria/Uptown Park, Greenway Plaza/Upper Kirby, downtown Houston and the Museum District/Montrose.
The Galleria/Uptown Park
The Galleria/Uptown Park submarket is home to some of Houston’s most prominent mid- and high-rise multifamily developments, with the highest net effective rent for greater Houston nearing $2.90 per square foot. The area is characterized by its blend of distinguished businesses and residential addresses with some of the area’s finest shopping, hotels, dining and night life.
It’s a charismatic, urban community with an average per capita income higher than areas such as Buckhead in Atlanta, Highland Park Village in Dallas and Beverly Center in Beverly Hills, Calif. The average household income is above the national average at $102,369. Nearly 2,000 companies operate in the area including major employers such as Clear Channel, The Dow Chemical Co., Marathon Oil Corp. and Schlumberger.
Its proximity to downtown and the medical center make the Galleria/Uptown Park area a highly desirable location for multifamily and mixed-use developments. Additionally, it is near attractions like the Houston Arboretum and Nature Center and the 1,503-acre Memorial Park, which includes a 600-acre golf course. In 2014, Drake Realty Group announced the listing for a premier infill core redevelopment opportunity totaling 1.9 acres comprised of two adjacent properties at the corner of Woodway Drive and South Post Oak Lane.
Greenway Plaza/Upper Kirby
This area is comprised of 10 commercial buildings employing nearly 250,000 people in more than 4.2 million square feet of space. It is within close proximity of some of the most prestigious retail locations in Houston such as Highland Village, The Galleria and Oliver McMillan’s River Oaks District project, which will include outdoor shopping, dining and entertainment.
Upper Kirby’s historic neighborhoods and new urban/mixed-use developments are surrounded by some of Houston’s most affluent communities. It has some of the highest rents in Houston, currently nearing $2.30 per square foot. This market is so popular that the Upper Kirby Redevelopment Authority is pushing to get ahead of the growing population by adding needed infrastructure and pedestrian improvements, a positive sign for multifamily/mixed-use developers looking for entry.
Downtown
Downtown Houston is undergoing a massive redevelopment, including historic preservation and restoration projects, streetscape improvements, an upscale shopping district, multiple hotel developments, park improvements and developments and downtown living initiative projects.
Downtown is the city’s central business district with more than 3,500 businesses employing 150,000-plus workers. The highest rents in the area are reaching $2.60 per square foot, and it is home to three of Houston’s major sports venues – Minute Maid Park, Toyota Center and BBVA Compass Stadium. The George R. Brown Convention Center is also in downtown, bringing thousands of visitors to the area throughout the year.
Museum District/Montrose
This submarket is the cultural epicenter of Houston. It is located within walking distance to 19 museums and centers including the Houston Zoo, Miller Outdoor Theatre and Hermann Park. Museum District/Montrose is also near downtown, the medical center, Greenway Plaza, Upper Kirby and The Galleria.
The Texas Medical Center, which is just minutes away, is the largest medical complex in the world and the largest employer in the region. Comprised of 54 institutions, it employs 92,500 people with an estimated local annual economic impact of more than $13.5 billion. The highest rents in the area are nearing $2.60 per square foot. The average household Income is $92,317 and is projected to increase by 23 percent by 2019, well above the national and state average.
What do these markets have in common? They are densely populated urban areas within close proximity to Houston’s largest employment districts, retail amenities, shopping and local attractions, and are highly coveted neighborhoods in which to live. With growing populations and popularity, developers are vying for entry, which doesn’t come without barriers.
These Houston submarkets have strong barriers to entry due to limited developable real estate, challenging sizes and configurations of available parcels, immense competition to buy and top dollar pricing.
While some commercial real estate professionals may be blinded by issues resulting from oil and gas and the unknown impact it will have for the next 18-24 months, based on these strong submarkets, as well as the high demand for core infill luxury product in the very best locations, we believe the Houston market continues to have strong momentum and opportunities for multifamily and mixed-use development projects.
— By Kyle Drake, president, Drake Realty Group. This article originally appeared in the May 2015 issue of Texas Real Estate Business.