The Westchase submarket has seen quite a lot of volatility this past cycle due to the oil downturn. The vacancy rate for Westchase as of fourth quarter 2019 is 22.8%, which is quite high. However, it seems that rates have finally evened out.
Some 20 million square feet of office space make up the Westchase submarket. 55% of that space is attributed to four- and five-star office buildings.
Westchase is about 15 miles outside of downtown Houston. It is easily accessible by Interstate 10 and within close proximity to high-end residential neighborhood Memorial Villages. Key industries in this area are energy, oil and gas, and engineering companies. With the oil industry projected to remain flat over the next couple of years, this could negatively affect office demand in the Westchase submarket.
We will definitely keep our eye on the submarket for future opportunities as Westchase will continue to be more favorable towards tenants.
Leasing Opportunities in Westchase Houston
Net absorption in the last twelve months was -130,000 SF which has been a positive step forward for Westchase. While demand for office space increased in 2019, there are still some concerns looking ahead. Namely, developers overbuilt office space as companies turned toward consolidating, especially in the energy sector. With a dip in construction and leasing activity up, we could see the vacancy rate drop to around 20% by the end of 2020. This would still place Westchase among the underperforming markets in metro Houston. But it would definitely be an improvement.
Let’s take a look at some of the more active buildings leasing office space in the last 12 months:
Four & Five Star Buildings:
- Granite Briarpark Green-3151 Briarpark Drive leased 103,454 SF
- 2500 CityWest-2500 CityWest Boulevard leased 54,298 SF
- One Westchase Center-10777 Westheimer Road leased 27,170 SF
Three Star Buildings:
- 9800 Richmond Avenue leased 31,243 SF
- Woodlake Office Park-2500 Tanglewilde Street leased 8,730 SF
- Woodlake Plaza-2600 South Gessner Road leased 7,112 SF
Asking Rents in Westchase
Asking rents for office space in the Westchase submarket are on the low side for Houston, averaging around $27.00/SF. Rental rates in this market have been falling due to company consolidation and the decreasing energy industry workforce. Fourth quarter 2019 did see a very slight increase of 0.8% rent growth, which was just enough to push Westchase into the top five submarkets in Houston metro.
Despite positive growth, Westchase is still considered a tenants’ market.
Construction in Westchase
Development in Westchase has been subdued with no new office projects currently under construction, which will help the vacancy rate compress. Over the last eight quarters, we’ve only seen 21,000 SF of office space delivered. That construction was completed in July 2018 by developer DLR Group and Andres Matheson.
Westchase submarket expanded the most early on in this cycle. By 2010, we saw 3 million square feet delivered. This was mostly due to the oil boom and large energy companies looking for affordable office space to lease in higher-end buildings. As of right now, Westchase has a fairly small pipeline with 387,200 SF of proposed space to be built in the next eight quarters.
- 10402 Valley forge Drive- delivered 21,000 SF
- CityWestPlace 6- 387,200 SF building to be completed February 2021.
Sales Activity in Westchase Houston
Sales in Westchase have continued to stay strong despite the downturn in leasing. The average sale price per square foot is $267. Average cap rates are 5.3% and average vacancy at time of sale is sitting at 31.2% This has been a popular submarket for large sale transactions, REITs, and portfolio sales with multiple properties.
Let’s look at some of the most significant sales in the last twelve months:
- One BriarLake Place-2000 West Sam Houston Parkway South-502,410 SF building sold for $133,906,829 which equals $267/SF.
- Two BriarLake Plaza-2050 West Sam Houston Parkway South-333,100 SF building sold for $88,780,806 which equals $267/SF.
Despite high vacancy rates and a downturn due to changing economics in the oil and energy industry, Westchase is still in the top five submarkets in Houston. Investors in commercial office space are active in Westchase and are looking for more deals, especially large portfolio sales.
Westchase is also a very attractive market for Tenants looking to lease office space. Landlords are willing to make concessions and have more leeway with rental rates in order to lease office space and bring down vacancy rates.
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!