2019 is shaping up to be a great year for The Woodlands submarket in metro Houston. With a low vacancy rate of 8.9% and higher asking rents, this solid submarket is outperforming competitor submarkets. New developments like Springwoods Village have attracted major office tenants such as ExxonMobil, Southwestern Energy and HP, Inc. This submarket has a strong outlook and will continue to be one of the top-performing office markets due to its many live/work amenities and residential communities in the area.
Leasing Opportunities in The Woodlands Office Submarket
The Woodlands office submarket comes out on top with the lowest vacancy rates when compared to the other five major submarkets in Houston. Absorption was 1,100,000 SF this past year and leading into 19Q3 demand is staying strong. January 2019 saw the largest office tenant move in with American Bureau of Shipping taking 326,800 SF in CityPlace 2. Woodlands Waterway and Springwoods Village are 2 notable mixed-use developments in this market and could continue to see growth with 9 million SF of office and retail space, 500 hotel rooms, and 5,000 residential units. Let’s look at some of the more significant leases signed:
- Alight Solutions signed a lease in 2019 taking 180,000 SF at 8770 New Trails Dr. Delivery will happen in May 2020.
- Huntsman’s renewed its lease in 2018 for 250,000 SF at 10003 Woodloch Forest Dr.
- ARC Holdings signed a one-year extension in 2018 for 190,000 SF at 4000 Technology Forest Dr.
- Entergy leased 54,000 SF at Lake Front North also in 2018.
We believe The Woodlands office submarket will continue to thrive in the next couple of years. This is due to steady growth from multiple planned mixed-use developments. Also, this area attracts companies that want to build new corporate campuses to offer employees competitive live/work/play options. Landlords should expect vacancy rates to remain low and see larger tenants moving in.
The Woodlands rental rates are about 15% higher than the surrounding area. This is due to solid demand and lower vacancy. Asking rents average about $32.00/SF. This is the third-highest after CBD and Galleria/Uptown as of 19Q2. Four and five-star commercial buildings command north of $35.00/SF. As the office market across Houston turns more positive we will see The Woodlands benefit from a more compressed vacancy rate. In addition, asking rents will rise slightly before leveling off in the next couple of years.
As the Houston submarket absorbs the recent increase in deliveries from the construction boom, we will see fewer large developments in the near future. Generally, The Woodlands ranks high out of the top five submarkets. Specifically, it has 250,000 SF under construction. Let’s take a look at some bigger developments contributing to this:
- 180,000 SF being developed for Alight Solutions at 8770 New Trails Dr.
- 149,500 SF building CityPlace 1 is under construction in Springwoods Village.
- HP Inc. and ABS took a combined 800,000 SF in office space.
Major office tenants are at the forefront of commercial growth in The Woodlands. Ten million square feet of space was delivered four- and five-star buildings. This means that 87% of the total eleven million was high end commercial space.
Since large corporate owner-occupiers make up most of The Woodlands office submarket inventory, sales transactions are relatively small for this submarket. The largest recorded sale of 2019 so far is HP Plaza which includes the purchase of Buildings 1 and 2 in Springwoods Village. Both office buildings are five-star LEED-certified totaling around 380,000 SF. In addition, tenant HP Inc. signed a twelve-year lease making the properties 100% occupied. The company chose to move its 2,400 employees to the mixed-use development CityPlace due to flood damage in 2016/2017. Now, HP Inc. can take advantage of the 2,000-acre community in north Houston.
Fall 2018 saw the most significant sale with The Howard Hughes Corporation snapping up 2 investment buildings at 2103 Research Forest Dr. and acquiring 3.46 acres of vacant land for $53 million. The property will be turned into Lake Front North at Hughes Landing and the new landlord will likely lease the other assets.
The Woodlands office submarket will continue to grow and attract new tenants with high-end commercial properties, developers looking to build corporate campuses, and residential communities. Whether your business is a large corporate entity or small and locally-focused, our team of experienced brokers can advise you on the best real estate strategy. Contact CXRE today and let us help you find space!