The Galleria/Uptown submarket is seeing strong demand for office space in 2019. What’s more, this submarket is unique because it features a live/work/play lifestyle for residents, employees, and employers. A large array of industries occupies commercial space here ranging from banking, real estate, energy, and multiple business services. The vacancy rate is currently 16.5% with a twelve-month rent growth of 0.7%. A $200 million renovation to Post Oak Boulevard is underway. Additionally, more public transportation options such as a rapid bus line and improved walkability throughout will further improve the area. Galleria/Uptown is home to a 2.4 million SF Galleria mall and is one of Houston’s wealthiest neighborhoods. Also, the submarket’s high-end office spaces make this area prime for steady growth over the coming years.
Leasing Opportunities in the Galleria/Uptown Submarket
Out of the top-five submarkets in Houston metro, the Galleria/Uptown submarket comes in second-lowest with a vacancy rate of 16.5%. Interesting to note, the availability rate for office space that is for lease or sublease is quite high at 26%. We saw two large lease renewals at the beginning of 2018 with Apache Corp. and Williams signing on to occupy 825,000 SF of office space which will keep both tenants in the submarket through 2024 and 2028. Some short term leasing concerns come with BHP Billiton announcing it will have 273,000 SF of office space coming available for sublease which could bump up the vacancy rate. Let’s look at some of the most active office buildings in Galleria/Uptown in the past twelve months.
Four and Five Star Buildings:
- Williams Tower, 2800 Post Oak Boulevard – leased 48,356 SF
- Marathon Oil Tower, 5555 San Felipe Street – leased 21,889 SF
- 5444 Westheimer Road leased – 10,100 SF
Three Star Buildings:
- 3033 Chimney Rock Drive – leased 30,219 SF
1800 Saint James Place – leased 15,989 SF
5433 Westheimer Road – leased 10,948 SF
Asking Rents in Galleria/Uptown
Asking rents for office space in this market are some of Houston’s highest, averaging around $32.00/SF. Also, Galleria/Uptown ranks second-highest as of third quarter 2019 coming in just below the Central Business District. Over the past twelve months, annual rent growth was at 0.7% with the largest increases seen in three-star inventory due to limited supply. The Galleria/Uptown submarket was definitely impacted by the oil downtown in Houston but looking back over this last cycle asking rents grew by 15% since 2010. Furthermore, forecasts for this submarket are positive, and we should see small increases in asking rents over the next couple of years along with steady growth.
In the past twelve months, there were no deliveries in Galleria/Uptown. Plus, there aren’t any new office projects in the pipeline. However, this could be good for this submarket: since 1.5 million square feet of space was added between 2010 and 2017. Specifically, most of this office space added was mostly four and five-star buildings which equaled about an 11% increase in inventory.
Sales Activity in the Galleria/Uptown Submarket
Overall, sales activity has been fairly slow in Galleria/Uptown with only a few transactions taking place since January 2018. Yet one large sale to take note of was Marathon Oil Tower which sold for $176.5 million ($147/SF). Houston-based M-M Properties and Baupost Group of Boston acquired the property. The average price per square foot is $145 with an average vacancy rate at the time of sale sitting at 28.9%. Below are a couple of significant sales over the past twelve months.
- 1900 Saint James Place sold for $20,750,000 ($148/SF) in July 2019
- Yorktown Plaza Two 5373 West Alabama Street sold for $14,180,383 ($146/SF) in January 2019
- Yorktown Plaza One 5353 West Alabama Street sold for $13,819,617 ($141/SF) in January 2019
We see Galleria/Uptown continuing to be a thriving submarket in Houston and a great place for companies and tenants to lease office space and take advantage of the live/work amenities in this area. While sales and investing have been on the slow side for this market there are opportunities available for investors that want to be in a more affluent part of Houston but out of the central business district.
Just keep in mind, tenants will be paying a premium to lease commercial space in this market so hiring a tenant representation broker to help negotiate the best lease for your business would be a good idea. Without a doubt, we have a team of experienced brokers that can advise you on the best real estate strategy and help you find space, contact CXRE today!