CBRE: Houston ‘Resilient’ After Hurricane Harvey

Hurricane Harvey dropped more than 50 inches of rain in the Houston area, but the city has survived at least eight other severe floods and hurricanes since 1998 and it will rebound from this, too, said CBRE, Los Angeles.

“Houston’s commercial real estate market is resilient after weathering Hurricane Harvey and the largest rainfall the area has recorded in decades,” CBRE Americas Head of Research Spencer Levy said. He noted the Category 4 storm was the strongest to hit the region since 1961.

Levy called the outlook for Houston’s recovery “optimistic,” but said short-term disruptions will occur.

“Available space to house displaced companies, stores and residents–as well as relief workers–is likely to become scarce in certain Houston submarkets, and the rebuilding effort will temporarily fuel a rise in retail sales and additional demand for warehouses in the area from building-supply companies,” Levy said. “Overall, Houston’s recovery will take time, but the area’s strong economy will help it rebound soundly.”

Nearly all of Houston’s office buildings escaped the worst flooding, CBRE reported. The firm estimated fewer than 40 buildings of the city’s 1,200 office building inventory flooded.

“Most of the office product impacted by flooding is in four areas to the west and northwest of the central business district–West Houston, Allen Parkway, West Loop/Galleria and FM 1960/Highway 249,” the report said. These submarkets total 35 percent of Houston’s office market and were 84 percent occupied at the second quarter’s close.

Many displaced office tenants expect to return to their original locations as soon as next month, so many will sign very short-term leases rather than longer-term direct ones, CBRE said. It noted more than 11.1 million square feet of available sublease space in Houston at midyear, providing numerous options for these tenants. “As a result, we expect to see a decline in sublease availability in the third quarter,” the report said.

Industrial real estate occupancy will likely rise, CBRE predicted. “Several national building-supply companies are presently securing additional space for the extensive $100 billion-plus rebuilding effort that will occur over the next year,” the report said. “A spike in requirements ranging from 20,000 to 500,000 square feet is expected to put downward pressure on industrial vacancy rates over the near term, driven by building suppliers, charities and distributors of consumer goods.”

Prior to Harvey, Houston’s Class A retail market was 97 percent occupied–a record high for the region, CBRE said. Fortunately, hurricane damage to retail properties was not widespread, mainly affecting smaller neighborhood and strip centers. “As a result, Harvey is not expected to impact national retailers’ expansion plans, although a market strained by limited availability will continue to hinder leasing,” the report said. “Displaced retail tenants have already begun searching for temporary space with little success due to the tight market conditions.”

CBRE noted home improvement and related retailers are expediting their location decisions to capture demand for repairs due to the historic flooding.

Residential properties were hit hardest by flooding, especially single-family homes in suburban areas northeast, west and southwest of downtown Houston, mostly in just three of the nine counties comprising greater Houston, CBRE reported.

As many as one in six houses flooded, meaning apartments currently for rent and that escaped the storm will see “sharp” occupancy increases by the start of the third quarter, the report said. “Concessions and competitive move-in specials characterizing the rental market since 2016 are expected to quickly rescind and renters with leases expiring in the next six months should not anticipate any type of renewal incentives,” CBRE predicted.

The Mortgage Bankers Association has developed materials on its website––to assist those affected by Harvey. These materials will be updated regularly as more information and resources become available.