Catering toward smaller local tenants, the Southwest Freeway/Hillcroft submarket has some of the lowest rental rates in Houston, offering great value to companies that want to be near the Southwest Freeway. This submarket has remained mostly strong avoiding some volatility that comes with larger tenants especially in the energy industry. Aging properties in this area do pose a challenge to attracting new tenants due to other submarkets having newer affordable office space. Specifically, vacancy rates are currently at 18.7% with negative -3.3% twelve-month rent growth.
Leasing Opportunities Southwest Freeway/Hillcroft
Most office tenants in Southwest/Hillcroft occupy around 2,000 SF of space with leases signed this past year only averaging about 1,100 SF. Overall, demographics and aging office buildings play a part in this submarket having one of the highest vacancy rates in Houston as of third quarter 2019. Let’s look at some of the active buildings leasing space these past 12 months.
Four- & Five-Star Buildings
- Arena Place – One Arena Place 7322 Southwest Freeway leased 109,809 SF
- Arena Place – Two Arena Pace 7324 Southwest Freeway leased 51,254 SF
- Southwest Center – 6671 Southwest Freeway leased 19,868 SF
- Regency Square Office Building – 7211 Regency Square Boulevard leased 8,514 SF
This submarket definitely has some work to do on generating demand for space and bringing down the vacancy rate. Yet, we could see an uptick in leasing activity by 2024, which could drop the vacancy rate to 15%. However, some may still consider it an underperforming market compared to the Houston metro average.
Asking Rents in Southwest Freeway/Hillcroft
Taking into consideration a higher than average vacancy rate in this submarket we are also seeing rental rates below average for the Southwest Freeway/Hillcroft submarket. On the whole, office space in this market is definitely affordable for tenants looking to lease space coming in at $17.30/SF. What’s more, we saw rent growth in this market from 2012-2014 but as of the last twelve months, rent gains have turned negative. On top of that, forecasts for this submarket remain steady if not slightly positive. In the long run, we could see asking rents start to increase around 2023.
The Southwest Freeway/Hillcroft submarket has about 5.3 million SF of office space. This lands the area right in the middle of the Houston submarkets. Like the majority of inventory in Houston, most office properties were built in the seventies. Furthermore, very limited supply has come online in the past ten years. The majority of assets in this market are around 50,000 SF and have become dated these last few years. One and Two Arena Place are the only four and five-star properties in this submarket with about 150 tenants occupying both buildings.
Sales Activity in Southwest/Hillcroft
Since this particular submarket is fairly small, sales activity has been quite slow with less than ten transactions occurring each calendar year. We did see one large portfolio transaction take place in January with the sale of a 112,500 SF building at 7011 Southwest Freeway and an 8,100 SF building at 7033 Southwest Freeway.
A local investor purchased the properties and is now seeking new tenants. Below is the most recent sale in the past twelve months for Southwest/Hillcroft.
- 6000 Dale Carnegie Lane – 2-star building sold for $3,878,771 ($231/SF) 9/25/2018
2018 Significant Sales
- 7045 Bintliff Drive – 2-star building sold for $1 Million ($102/SF) June 2018
Even though the Southwest Freeway/Hillcroft submarket is a softer market compared to most of Houston metro we still see opportunities here. Especially for smaller businesses or single tenants looking to lease more affordable office space. At the same time, investors could also do well here. If the right deal is found to update an aging property, an investor could make it more appealing to tenants. Whether you’re a business or investor looking for office space 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!