Millions of square feet of office and industrial space have been added in the Northwest Houston area over the past year, particularly along Beltway 8. The northwest corner of the Beltway—from Hwy. 290 to Hwy. 249—has seen a high level of productivity, including a handful of new Class A buildings opening this year as others break ground.
“The reason you see so much Class A development is because tenants are making it clear how much they value quality space and amenities,” said Ryan Bishop with Stream Realty Partners, the agency handling leasing for Remington Square, a Beltway office development near Fallbrook Drive. “Large population growth has taken place in suburban Houston communities, from Kingwood down to Sugar Land, making northwest Houston an ideal location for this kind of project to thrive.”
Upcoming projects
Developments such as Remington Square, the Sam Houston Business Park and the DCT Northwest Crossroads Logistics Centre broke ground on projects within the past year as initial phases filled up. All three projects are located around the northwest Beltway, where the average cost to lease is significantly lower than other major submarkets, according to data from real estate company Colliers International.
Available space at Phase 1 of the DCT project, located at 11717 Windfern Road, started receiving tenant interest well before construction finished, prompting the industrial real estate developer to immediately begin work on Phase 2.
“We believe the preleasing is a testament to the strength of DCT’s development program as we continue to source highly desirable locations,” Regional Vice President Justin Bennett said.
One of DCT’s tenants is Lennox International, which is using the space for its regional distribution center. Amy Strauss, Lennox’s manager for corporate real estate, said the location off Beltway 8 is key to its operations.
Other new major projects in the area include the Legacy at Fallbrook and Beltway Crossing Northwest, both of which saw the completion of initial phases earlier this year. The first phase of the 117-acre Fallbrook Pines Business Park, the largest industrial park underway in Houston, is expected to be completed mid-2015.
The project may seem ambitious, but developers with Trammell Crow Company expect strong interest in the site, which they say allows tenants to reach a growing market.
Surviving oil woes
The effect of slumping oil prices in Houston were seen in office market reports released by Colliers earlier this year. Forced to make cutbacks, many companies in the energy sector began subleasing office space they no longer needed. This resulted in an increase in available sublease space in the Greater Houston area from 4.5 million square feet in late 2014 to 6 million square feet in 2015, according to the report.
“This is no surprise as just over one-half of Houston’s economy is directly tied to the energy industry,” researchers concluded in the report released in April. “The good news is the majority of new projects under construction are significantly preleased. Coupled with a low vacancy rate, this should keep Houston’s office market relatively healthy until energy prices rise.”
Vacancy rates in the northwest submarket, which covers Northwest Houston within Beltway 8, have risen since this time last year from 14.3 to 16.1 percent. Vacancy rates in the FM 1960 submarket—Northwest Houston along and outside of Beltway 8—fell from 15.6 to 13.1 percent over that time despite the oil slump.
Ancillary developments
The race to pick up the remaining space along the Beltway has been joined by developers looking to create dining options as well. Multiple restaurants opened at West Eight Crossing over the course of 2014 at the northwest corner of Beltway 8 and West Road.
NewQuest Properties—the developer behind West Eight Crossing—brought Potbelly Sandwich Shop, Salata and Chipotle Mexican Grill to the plaza to provide options for the growing workforce, said David Meyers, senior vice president at NewQuest. At the same time, Edge Realty Partners has been bringing dining tenants to Gessner Plaza at the northeast corner of Gessner Road and Beltway 8, including Kawa Sushi and Pho Hoang.
The businesses at West 8 saw success almost immediately with many of them filling up at lunchtime, which did not comes as a surprise to developers.
“Industrial and office projects have really exploded in the past 24 months and there’s just a large population of people we felt were underserved,” Meyers said. “We wanted to bridge that gap.”
