Houston Real Estate Trends

Houston Real Estate Trends is widely read by brokers, developers and other industry professionals. The newsletter is $199 per year and covers significant transactions and economic and financial news for Multifamily, Retail, Office, Industrial, Single-family and Vacant land. Click on the following for more information:

Apartments
Fourth Quarter 2007 figures indicate Greater Houston apartment occupancy is on the decline. Over the course of the year, overall occupancy has slid 0.45 points to its current level at 88.17%. Of all the classes, Class A occupancy has been the hardest hit, dropping 2.16 points over the year from 90.77% to 88.61%. Class C has also experienced a slight negative decline in occupancy, dropping from 86.24% in the fourth quarter of 2006 to 85.81% in the fourth quarter of 2007. Comparatively, the Class B market remains in relatively good shape with occupancy at 89.78%, though it has dropped 0.18 points since last quarter. While the winter months are typically slower months for the apartment market, we expect to see a trend of increasing occupancy due to many homeowners loosing their houses due to foreclosures over the next couple of months.

According to www.oconnordata.com, O’Connor & Associates’ online apartment data program, Fourth Quarter 2007 overall occupancy for Houston area apartment projects is 88.17% (Class A = 88.61%; Class B = 89.78%; Class C = 85.81%; Class D = 84.27%). Occupancy is down 0.69 points from the third quarter and down 0.45 points over the past year. The overall rental rate is $0.848 per square foot (Class A = $1.122; Class B = $0.821; Class C = $0.698; Class D = $0.607). Overall rents are up $0.003 from the third quarter of 2007 and $0.017 over the past year.
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Note: The multifamily projects listed herein are followed by their representative identification number as they appear in the new O’Connor & Associates ApartmentLink Online Data platform and are provided for subscriber cross-referencing. The property information contained within this database is updated on a monthly basis and accessible over the web (please contact us for more details).

Single-Family Housing
MLS home sales decreased in November, as 3,965 used homes were sold, down from the 4,323 homes sold in October, according to the Houston Association of Realtors (HAR). Sales for November 2007 were down 9.4% from November 2006. The median price of a used single-family home sold in November was $150,000, up 1.7% from November of last year, while the average home price was $205,815, which was up 6.4% from the November 2006 level. Note: MLS sales include primarily used home sales throughout the Houston region. Historical comparisons are offered solely for informational purposes and may not truly reflect growth in sales.

According to American MetroStudy, net sales of new homes increased 8% in October to 1,547 from 1,428 in September, but are down 28% from October 2006. Realtor co-op sales represented 62% of gross sales, down 2% from October of last year. Traffic decreased 22% from last year to 21,011 in October 2007. The inventory of completed speculative homes (2,156) is down 5% from last year. There are 2,139 spec homes under construction, which is down 48% from October 2006. Overall, the 4,495 specs (both completed and under construction) are down 33% from October 2006. Note: the 24 homebuilders in this survey account for approximately 65% of housing starts in Houston.

Nationwide sales of new single-family homes increased in November to a seasonally adjusted annual rate of 647,000, 9.0% below the revised October sales rate of 711,000 and 34.4% below the November 2006 figure, according to a release by the U.S. Department of Commerce. The median sales price in November was $239,100. Privately owned housing starts were at a seasonally adjusted annual rate of 1,187,000 in November 2007, which is 3.7% below the revised October estimate, and 24.2% below the revised November 2006 rate. Privately owned housing completions were at a seasonally adjusted annual rate of 1,344,000 in November, 4.1% below the revised October figure and 28.7% below the revised November 2006 figure.

The National Association of Home Builders/Wells Fargo Housing Market Index, a monthly measure of builder confidence, remained unchanged at 19 in December, on a scale where any number greater than 50 indicates that builders view sales as more good than poor. This is the index’s lowest point since the series began in January of 1985. The index measuring current sales of new single-family homes improved by 1 point to 19, the index measuring sales expectations for the coming six months rose 2 points to 26, while the index measuring the traffic of prospective buyers decreased 3 points to 14.

According to the National Association of Realtors (NAR), 5,000,000 existing homes were sold in November 2007, up 0.4% from October sales, and down 20.0% from the 6,250,000 homes sold in November 2006. The median sale price was $210,200, which represents a 3.3% decrease from sale prices last year.

According to the most recent report by RealtyTrac, 201,950 foreclosure filings — default notices, auction sale notices, and bank repossessions — were reported during the month of November. This figure is down 10% from October, but up 68% from November 2006. The company estimates that one in every 617 households nationwide entered the foreclosure process in November. Texas remains among the nation’s 14 highest states in total foreclosure filing for the month of November.

Lennar Corp., the nation’s largest builder in terms of revenue, is selling a portfolio of 11,000 properties to a joint venture it has established with Morgan Stanley. Morgan Stanley will own 80 percent of the joint venture, while Lennar will own the remaining 20 percent. The portfolio, which includes a mix of raw land and partially and fully developed homesites, is selling for $525 million, or 40 percent of their previously-stated book value.

Cherokee Investment (512-615-2777) plans to develop a 650-acre mixed-use community called Imperial Sugar Land located at Highway 6 and Highway 90A in Sugar Land (568N). The home prices will start at $300,000. The developer hopes to create the look of an old Houston neighborhood like the Heights or River Oaks with alleys and detached garages. Preliminary work at the site is expected to start early 2008, with work on the neighborhood beginning in 2009. The project will also include 27 acres a commercial retail space and 36 acres of office or light industrial space.
Grason Communities (281-656-0555) plans to develop Reflection Bay, a 492-acre 1,400-home residential community located west of Highway 146, on the north side of Dickinson Bayou in Texas City (661W). The community will feature homes with a price range from the $150,000s to the $250,000s and will be able to accommodate boaters. Pre-construction work is slated to begin in 2008.
Carmel Builders (713-952-6767) is developing The Brownstones at CityCentre, a townhome project located at I-10 and Beltway 8 (489D) as part of the City Centre mixed-use development underway by Midway Cos. Plans call for the construction of 35 brownstones with average sizes ranging from 3,200 to 3,700 square feet that will priced from $810,000 to over $900,000. The three-story homes are currently under construction with completion in 2008.
Black Diamond Development (713-532-8849) plans to develop Bammel Lane Park Homes, a 1.7-acre 12-home community located off Bammel Lane south of West Alabama in the Upper Kirby District (492T). Homes will range in size from 3,900 to 5,500 square feet and have a starting price of $1.6 million. Construction is expected to begin by the end of 2007.

Permit Issuance
The City of Houston issued permits to build 457 private single-family houses and 66 private multifamily buildings in November. Demolition permits were issued for 154 private single-family houses and 2 multifamily structures. In addition, 202 permits were issued for privately owned non-residential construction totaling $141,754,219 and 0 permits were issued for public non-residential construction. Additions, alterations, and conversions totaled $98,717,421 for the private sector and $5,509,257 for the public sector.

Cost of Construction*
	2005	2006	2007
Month of November	$404,089,921	$344,282,616	$405,824,052
Year-to-Date	$3,436,311,976	$4,730,156,017	$5,098,561,024

*The figures in this section include all categories of buildings and non-building structures

Office Buildings
Office building sales in Greater Houston were especially brisk in 2007, as more than 60 properties traded hands. Some of the areas that saw the most activity include the Bellaire/West University sector where at least 19 properties sold in 2007, the Greenspoint/Northbelt area where 9 sales were recorded over the year, and the Galleria area where approximately 6 properties sold during the year. With 19 properties trading hands in the Bellaire/West University area, it is not surprising that over 3.7 million net square feet of office space came under new ownership in Houston. Also noteworthy for the year is the over 2.5 million net square feet of office space in the Central Business District were also sold. The Bank of America Center contributed over 1.2 million net square feet of space to that figure. Looking ahead, Houston could see sales activity continue as buildings such as the Williams Tower come on the market.

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Note: The office buildings listed herein are followed by their representative sector code and identification number as they appear in the O’Connor & Associates OfficeLink Online Data platform and are provided for subscriber cross-referencing. The property information contained within this database is updated on a monthly basis and accessible over the web (please contact us for more details).

Retail Centers
According to comScore, Inc., online sales for the 2007 holiday season (November 1 – December 27) was nearly $28 billion. This figure is 19 percent higher versus the corresponding days last year. Even after the holiday season was winding down, relatively strong online sales continued. The day after Christmas saw online sales of $545 million, more than twice that for the same day last year. Consumers clearly took advantage of the promotions and price discount offered by many retailers. The strength of online sales is also indicated by the 21 percent of sales growth seen in the period between Thanksgiving and Christmas compared to the same period in 2006.

According to the O’Connor & Associates Third Quarter 2007 Houston Retail Data Program, citywide occupancy for Houston area multi-tenant retail buildings is 85.35% (Regional = 87.54%; Community = 87.37%; Neighborhood = 84.09%; Strip = 82.67%). Occupancy is down 0.06 points over the last quarter and down 0.23 points over the past 12 months. The citywide monthly multi-tenant retail rental rate is $1.61 per square foot (Regional = $3.00; Community = $1.59; Neighborhood = $1.19; Strip = $1.19). Overall rents remain the same from the last quarter, but are up $0.02 from last year’s figure.
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Note: The retail centers listed herein are followed by their representative identification number as they appear in the new O’Connor & Associates RetailLink Online Data platform and are provided for subscriber cross-referencing. The property information contained within this database is updated on a monthly basis and accessible over the web (please contact us for more details).

Industrial Facilities
The Houston industrial market is starting to show a slight decline, with occupancy levels down 1.14 points from last year. Overall occupancy was down 0.31 points in the third quarter to 91.73%, with rental rates unchanged from the second quarter at $0.43 per square foot. Research and Development facility space continues to post higher occupancy rates than the other industrial types. The Far Northeast sector has the highest occupancy, at 98.47%, followed by the Far South sector at 96.51%. The lowest occupancy levels were found in the Mid South sector, at 82.48%.

According to the O’Connor & Associates Third Quarter 2007 Houston Industrial Data Program, citywide occupancy for Houston area operating industrial facilities is 91.73% (Flex = 89.70%; Bulk = 94.10%; Manufacturing = 91.74%, Service = 85.65%, Distribution = 86.03%, R&D = 98.22%). Occupancy is down 0.31 points from the last quarter and down 1.14 points over the last year. The overall monthly rental rates remained flat at $0.43 per square foot (Flex = $0.45; Bulk = $0.37; Manufacturing = $0.36, Service = $0.57, Distribution = $0.40, R&D = $0.58).
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Note: The industrial facilities listed herein are followed by their representative identification number as they appear in the O’Connor & Associates IndustrialLink Online Data platform and are provided for subscriber cross-referencing. The property information contained within this database is updated on a monthly basis and accessible over the web (please contact us for more details).

Economic & Financial News
The total number of nonagricultural wage and salary jobs in the ten-county Houston area increased by 10,800 jobs to 2,557,700 in November 2007, according to the Texas Workforce Commission. This month’s total is 58,800 jobs more than the 2,498,900 jobs at this time last year. Of nonagricultural employers, the Trade, Transportation, and Utilities sector posted the largest gain over the month at 5,600 jobs, followed by the Government sector, with 2,700 jobs gained. Over the year, the Professional & Business Services sector has had the largest increase in employment, adding 13,100 jobs, followed by the Construction sector, which has added 11,300 jobs.

The following chart illustrates total non-agricultural employment in the Houston MSA.

The latest Conference Board Survey indicates that the Consumer Confidence Index increased to 88.6 in December 2007, up 0.8 points from 87.8 in November. The index is an indicator of consumers’ overall assessment of current conditions, relative to a figure of 100 in 1985, the base year. The Index of Leading Economic Indicators decreased 0.4% in November to 136.3. The index is an indicator of direction the economy is expected to take in coming months, relative to a figure of 100 in 1996, the base year.

According to the Federal Reserve, industrial production increased 0.3% in November and is up 2.1% over the November 2006 level. Output in the manufacturing sector increased 0.4% in November; output of utilities decreased 1.3% over the month, while output at mines rose 1.1%. The rate of industrial capacity utilization was 81.5% in November, which represents a 0.1-point increase from the previous month’s level, and is 0.2 points higher compared to the previous year’s level.

The U.S. Department of Commerce reports that advance estimates of the real GDP, the output of goods and services produced by labor and property in the United States, increased at an annual rate of 4.9% in the third quarter of 2007, up from the 3.8% growth rate recorded in the second quarter of 2007. The increase in GDP in the third quarter primarily reflected positive gains from personal consumption expenditures for services, exports, federal government spending, equipment and software, and state and local government spending.

The U.S. Department of Commerce reports that construction spending during November 2007 was estimated at a seasonally adjusted annual rate of $1,165.1 billion, 0.1% above the revised October estimate. The current figure is 0.1% below the November 2006 estimate of $1,166.3 billion. Private residential construction was at a seasonally adjusted annual rate of $484.9 billion in November, 2.5% below the revised October estimate of $497.1 billion, and 4.8% below the November 2006 estimate of $589.9 billion.

The Baker Hughes count of active domestic rotary rigs stands at 1,782 during the week ending December 28, 2007. The current rig count is up 4.2% from last year’s figure of 1,710 rigs. The rotary rig count is a census of the number of drilling rigs actually exploring for or developing oil or natural gas in the United States.

The National Restaurant Association’s Restaurant Performance Index (RPI) fell 0.7% in October to 100.0. The index is a monthly composite index that tracks the health and outlook for the U.S. restaurant industry. This is the index’s lowest level in more than four years. The decline was due in large part to a dramatic drop in the expectations component of the index.

The Gulf Coast Regional Blood Center has broken ground on a new Mobile Operations Complex located at 9990 Fannin in the Texas Medical Center. Construction on the 85,000-square-foot building will begin in early 2008. The building will include many environmentally friendly features such as reflective roofing materials, low energy windows, and low-use water fixtures. The new building will replace its old warehouse that was destroyed by fire in February 2005.
Houston ranked as the 21st most desirable city in walkability, according to a recent study by Brookings Institute. Washington, Boston, and San Francisco were the top three most desirable cities for walkability, while San Antonio placed 22nd and Dallas came in at No. 25.

In a recent survey released by Business Traveler magazine, Continental Airlines, Inc. ranked as the preferred carrier for business travelers in its 2007 Readers’ Choice Best in Business Travel Survey. Continental also ranked first for best flight attendants in North America and best in-flight services in North America.

According to the monthly Monster Worldwide, Inc. employment index, online job demand lost a point in the month of November. The Index for Houston had showed a 20 percent increase in the past 12 months. Of 21 occupational categories, 11 posted an increase over the month, while 9 declined and 1 remained unchanged. Military specific occupations posted the largest monthly gain of any category in online job opportunities over the month of November.

According to the November 2007 Architecture Billings Index, developed by the American Institute of Architects, demand for non-residential construction continues to rise. Following a rebound in October, November reported an index of 55.3 (any score above 50 indicates an increase in billings), up from the 53.2 mark in October. According to the AIA, the forecast for non-residential construction remains favorable throughout 2007 and into early 2008, based on lag time between billings and construction spending, and the high inquiry levels for new projects.

HomeVestors of America, Inc. has named Houston the best market for residential real estate investing for 2007. Houston ranked first, followed by Atlanta, Dallas, St. Louis, Phoenix, Fort Worth, San Antonio, Minneapolis, Chicago, and Milwaukee.

Please direct any questions regarding content in the Houston Real Estate Trends to Kathryn Koepke at 713-686-9955 or kkoepke@poconnor.com.