We reported about the state of Houston commercial real estate in Q2 2022 in an earlier blog post and this is a follow up on the year end outlook based on the last few months of data. The real estate market is in transition as of October 2022 and if the Houston residential market is an indicator of the overall market, then the residential market provided mixed readings in September per Houston Realtors Association (HAR). In May 2022, we reported the strong upswing in the real estate market.
We saw a drop in single-family home sales where total property sales and total dollar volume declined and pending sales fell 15.5 percent. However, Active listings (the total number of available properties) jumped 36.3 percent. The Single Family Average Sales Price for Sept 2022 year-over-year increased by 11.6%, which is super strong considering that we saw a strong 2021 during the pandemic year.
Houston Employment Recover in Q3 2022
The employment numbers in Houston is a baramoter of the commercial real estate market. As of August 2022, the Greater Houston Partnership reported that 5,400 jobs were created and you can see how the 19 industries faired to the pre-pendamic level.
There are 6 industry of the 19 industry that have yet to full recover to pre-pendamic level with the energy / oil-and-gas leading the deficit. This can be explained with the uncertainty in the price of crude oil and also the price at the pump.
Non-Farm Payroll Employment
The Aug 2022 Non-farm payroll employment in Houston now tops 3,273,100, well above the previous peak of 3,207,900 reached in November ’19 as reported by Texas Workforce Commission.
The visual clearly shows that Houston is making a recovery and on a right trajectory as of the latest information.
Key takeaways in Q4 2022 – Houston Multi Family Report
- Occupancy climbs from 88.4% to 91.8% in 2021up 340 basis points year-over-year
- Absorption positive 37,300 units up from 11,900 in 2020
- 15.0K units under construction
- Average monthly rent up 13.5% year-over-year
Key takeaways in Q4 2022 – Houston Retail Market Report
- Vacancy low at 5.8% down 40 basis points year-over-year
- Absorption total net positive 3.1M SF in 2021 vs. -700,000 in 2020
- 1.8M SF under construction, 42% pre-leased
- Class A in-line retail rental rates can vary widely from $25.00 to $85.00 per SF,depending on location and property type
Key takeaways in Q4 2022 – Houston Office Report
- Vacancy still high – competitive terms. Vacancy up 130 basis points year-over-year
- 2021 Total Net Absorption negative 1.9M vs. negative 4.2M in 2020
- 2.9M SF under construction, 55% pre-leased
- Average asking rental rates down 3.29% year-over-year
Key takeaways in Q4 2022 – Industrial Report
- Vacancy low at 7.1% down 140 basis points year-over-year
- Total 2021 Net Absorption historical annual record of 28.5M SF vs.
17.7M SF positive absorption in 2020 - Record leasing volume in 2021 of 44.5M SF
- 16.7M SF under construction, 31% pre-leased
- Average asking rental rates up 7.42% year-over-year
Key takeaways in Q4 2022 – Healthcare Report
- Vacancy increased slightly up 20 basis points year-over-year
- Total 2021 Net Absorption 1.2M SF vs. 1.9M SF in 2020
- 2.0M SF under construction, 31% pre-leased
- 597.5K SF delivered in 2021 (MOB’s only)
- Average asking rental rates up 1.6% year-over-year
Conclusion to Houston commercial real estate in Q4 2022
- Above Long Term Average Occupancy
The four out of the five commercial real estate segments tracked is seeing this trend. Industrial, Healthcare, Multifamily, Retail sector is seeing above long term average occupancy other than the office space. - Increase in Rent
Multifamily, healthcare and retail sector is seeing an increase in rent, while industrial is tethering at increase-decrease grey area. Office sector is not fairing well with the companies allowing employees to work-from-home still post pandemic.
In closing, there is a lot of upside to the commercial real estate market as we close off 2022. The office sector of the commercial real estate does have some headwind post COVID pandemic and as more companies encourage employees to return to the office, we look forward to 2023 as it recovers while the other sectors in the commercial space is doing well from occupancy to rent.
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