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Commercial real estate players predict what 2016 will bring

Houston Business Journal | 01.01.2016

With 2015 behind us, most commercial real estate brokers, developers and industry players are looking ahead to 2016. Common concerns include the oil slump and Houston's record-high amount of sublease space. However, a booming petrochemical market and healthy retail developments could help to mitigate negative effects in 2016.

Trey Odom, founder and CEO of Houston-based Avera Cos., said Houston's industrial market has gotten stronger since 2002, and that pattern should continue in the upcoming year.

"The deals have gotten bigger… Houston is in a wonderful spot and I don't see anything materially changing in 2016 and 2017," Odom said at a Boyar Miller commercial real estate panel in December. "The deal sizes have gone down a little bit … but 2016 demand and transactions that are in lease negotiations or in a negotiation for design are strong. … The big driver is petrochemical expansions. The Panama Canal is about to blow up. The Port of Houston and Eastern seaboard are almost finished."

And Jim Nelson, founder of Nelson Commercial Properties, is also a player getting deals done in the industrial space. Even though industrial is faring well compared to, say, the office market, industrial landlords are having to navigate an environment where tenants may have more reservations on signing long-term leases. In a down market, some property owners may also consider putting assets on the market.

"You know, we have an old phrase – cash is king. So any existing tenants and projects you have, you need to do anything to keep them," said Nelson. "I think that from a strategic standpoint, obviously in a slower market, people like me are probably looking to see opportunity to buy things when someone has some debt that they want to get rid of and they might see a property that they might not otherwise consider."

But one of the bleakest markets in commercial real estate is office, which is suffering from record-high levels of sublease space. Even submarkets commonly regarded as thriving, such as the Galleria or the downtown CBD, will likely face challenging times this year.

“The office market didn't see a whole lot of velocity in 2015 relative to what it experienced in 2012 and 2013," said Jimmy Hinton, managing director of HFF Inc. (NYSE: HF) in Houston. "Over 40 percent of our office stock has traded hands over the past four years. … We're not going to expect a lot of transaction volume in the office space in the next couple of years.”

Retail, however, is serving as another bright spot in Houston commercial real estate. The sector has added 11,300 jobs in the 12 months leading up to September, making 2015 the best year on record since the recession ended in 2011, according to a Transwestern report.Jonathan Brinsden, CEO of Houston-based Midway Cos., said at a December panel that Houston is going to see a much faster "obsolescence of tenants" in 2016 and beyond.

“The retail business is brutally competitive. I think what you're seeing is …The good ones are going to survive, and the lesser tenants are going to fail," Brinsden said at the Boyar Miller panel. "You can look at a window of one to three years and see if that tenant is going to survive as that concept. You’re either offering cost and convenience or an experience. If you're not squarely in one of those two spaces, chances are, you're not going to make it. The reality is that (retail tenants) who are successful do both really well.”

The HBJ also broke down the 10 biggest commercial real estate stories of 2015. Our Part I story delves into five of the top 10 stories, in no particular order. The remaining five stories are outlined in the Part II story.