Overview of FM 1960/Champions Office Submarket Report for Q2 2019
As we move into the third quarter let’s take a look at how FM 1960/Champions is changing and what it means for a tenant, landlord or investor interested in exploring this submarket. Vacancy rates for the FM 1960/Champions submarket have been showing signs of improving the last five years. In the past twelve months 13,000 SF of space was delivered in this submarket. Current vacancy rates sit at 13.8 % which is lower than the historical average of 16.6%.
Current vacancy rates sit at 13.8 % which is lower than the historical average of 16.6%.
Medical tenants occupy the majority of space and users are more locally focused with small businesses and single tenants moving in. The largest tenants in this market are two medical companies, Kelsey-Seybold Clinic which occupies 37,500 SF and Aduro which occupies 33,000 SF. Sales from the past 12 months have been averaging $61/SF with an average cap rate of 8.8% and a 10.5% vacancy at time of sale. This area has improved even though asking rents stayed low for the third consecutive calendar year making it attractive to tenants looking for more affordable office space. Despite the fact FM 1960/Champion has remained soft we still see an opportunity for improvement overall.
Leasing Opportunities in FM 1960/Champions
Slow and steady growth has driven leasing in this submarket but what does that mean for Landlords? 13.8% vacancy is an improvement for FM 1960/Champions and it is also below the metro-wide average. Most office tenants are local bringing a more cohesive feel to the inventory in this submarket. A smaller footprint helped in this cycle and a lack of exposure to larger tenants resulted in fewer rent losses as a whole. Positive demand resumed and the forecast for vacancy rates should be around 12% by 2020. At Lumicre we also see an opportunity for Landlords in this market to update and rehab office buildings in order to keep more long term tenants and attract larger companies looking for office space in the northwest Houston area.
Asking Rents in FM 1960/Champions
Low rental rents are more common in the FM 1960/Champions submarket than the rest of the metro Houston area. Asking rents average $18.80/SF and here are some reasons why:
- Inventory is small and aging buildings create less demand for space.
- The FM 1960/Champions submarket continues to see asking rents decrease.
- Office developers have overlooked this area.
- Tenants have been opting for newer, high-quality office space in other Houston markets.
Considering this market has continued to stay soft and has seen slow rent growth this year, projections for 2020 should stay pretty steady with only a slight increase. With lower rents, tenants looking to take advantage of reducing their real estate costs might want to consider this market.
Construction
FM 1960/Champions market offers about 4.4 million SF of office and medical space. In the past 12 months the submarket added two three star medical/office buildings.
- The first one at 16803 Stuebner Airline Rd and is now 100% leased.
- The second building delivered in 2018 at 8917 Louetta Rd, is 44,000 SF and 30% leased as of 19Q2.
Most commercial activity is located around Cypress Creek Parkway, Cypresswood Drive and Louetta Rd. The submarket is somewhat unique with 90% of the buildings in this area being under 20,000 SF due to lack of usable land. Since 2010, the majority of new deliveries have been 5,000 SF or less which is favorable toward single-tenant users.
Sales
Sales activity in this market typically involves smaller buildings and that was certainly the case in 2018. Torry Chase I, a 3 star 59,000 SF medical office building was purchased for $4.7 million ($80/SF) with a 9.65% cap rate and was almost 100% leased. The second notable sale was a 2 star, 20,500 SF building at 4560 FM 1960. A local investor acquired the asset for $2.15 million ($105/SF) at a 9.5% cap rate. This deal was recorded as one of the higher prices in 2018.
At Lumicre we see potential in this market for single tenant users, companies looking to find affordable office/medical space, and an opportunity for investors. FM 1960/Champions is favorable to tenants and will continue to be a more reasonable option for users in the future compared to the rest of the Houston market. Our team of experienced brokers can advise you on the best real estate strategy for your business and help you find space, contact Lumicre today!
Research courtesy of independent sources, factoring in data from brokers, CoStar, BizJournals and internal research.