Katy Freeway East Submarket Update - CXRE Commercial

The Katy Freeway East submarket has strong demographics and is closely located to the rapidly expanding western suburbs of Houston. Over the last couple of years it has become a thriving mixed-use area with CityCentre and Memorial City developments offering multiple amenities and walkable campuses to attract the millennial workforce. What’s more, rent growth over the last twelve months has been 3.4% with an 8.4% vacancy rate. Overall, we see Katy Freeway East poised for more development and growth opportunities. Especially with Amazon Web Services moving in and two large co-working companies leasing office space.

Leasing Opportunities in Katy Freeway East Houston

Third Quarter 2019 in the Katy Freeway East market continued to rank high and perform well among the Houston office submarkets with an 8.4% vacancy rate. We saw positive absorption come back after a negative 2017 year and this particular submarket has remained quite strong especially compared to Katy Freeway West. A short supply pipeline and demand for office space could keep the vacancy rate below 10% over the next 5 years which is certainly an improvement. Let’s take a look at some of the most active buildings leasing office and medical space in the last 12 months.

Katy Freeway East SubmarketFour- & Five-Star Buildings:

  • CityCentre One – 800 Town & Country Boulevard leased 75,562 SF
  • MetroNational Memorial City – 10100 Katy Freeway leased 71,057 SF
  • 2 Memorial City Plaza – 820 Gessner Road leased 55,840 SF

Three-Star Buildings:

  • 8584-8588 Katy Freeway leased 36,797 SF
  • 8554 Katy Freeway leased 19,754 SF
  • 10497 Town and Country Way leased 17,093 SF

Asking Rents in CBD Houston

Asking rents for office space in this market are quite high for Houston. Currently, they average around $31.00/SF which comes in about 10% above the metro average. Although there has only been 3.4% rent growth in the Katy Freeway East submarket over the last 12 months, Houston’s office market still remains very competitive and favorable to tenants looking to lease office space.

Construction

Katy Freeway East currently has about 328,211 SF of space under construction as of Third Quarter 2019 and has slowed down considerably. Around 2.6 million SF of office space has been delivered in Katy Freeway East which has increased inventory by 25%. This has pushed the market into one of the top players among office submarkets in Houston, bringing the total inventory to 11.6 million SF of space. Let’s look at some of the activity taking place in Katy Freeway East:

Recent Deliveries

  • Hedwig Place – 8731 Katy Freeway, 102,474 SF, completed July 2019

Under Construction

  • 9753 Katy Freeway – 161,280 SF building; delivering October 2020
  • 9655 Katy Freeway – 150,000 SF building; delivering July 2020

Proposed

  • Block 10 West Medical – 10498 Old Katy Road to be completed December 2020
  • Town Centre Two – 730 Town & Country Boulevard to be completed October 2020

Sales Activity in CBD

Katy Freeway East SubmarketKaty Freeway East sees very limited sales transactions take place despite it being a large office submarket. Generally, deals happen through private investors with cap rates at about 8.8% and an average sale price of $401 per/SF. Below are some recent significant sales over the last 12 months.

  • CityCentre Five-825 Town & Country sold for $93,000,000 ($410/SF)
  • Park Laureate-10000 Memorial Drive sold for $59,040,000 (390/SF)
  • 1902 Laverne sold for $700,000 ($304/SF)

Furthermore, we see the Katy Freeway submarket staying competitive for tenants which means there’s still deals out there in the right buildings to lease office space. As a result, investors wishing to expand their portfolio in Houston might want to consider Katy Freeway East. Many 1980s buildings need updating or risk losing tenants. In fact, some of this inventory could be a good way to invest in the Houston market. Without a doubt, we have a team of experienced brokers that can advise you on the best real estate strategy for your business and help you find space, contact CXRE today!

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