Small user office buildings strong in class A/B parks
February 18th, 2010
Most Houston office markets see 1st qtr. increases in occupancies, absorption and rental rates. For local developers, this may be why small user office buildings are a small shining light in the fog of uncertainty. In areas where multi-tenant office development has consumed all the vacant land, those owners with a low basis could do well with properly planned user buildings. Construction of any commercial type has all but ground to a relative stop. This leaves investors searching for viable alternatives which don’t require high leverage…or any leverage and users with cash hovering for freestanding product. Recently, smaller speculative office parks in A/B parks have commanded high prices and sold/leased out quickly. Mature, B/C markets with similar developments have not fared as well. Low interest rates, historically low construction costs and lack of new product all bode well for the astute investor/builder. While small in size (three to eight buildings at 2,000 to 10,000 SF each), these developments accomplish adequate economy of scale unobtainable by the single building user/owner. Rental equivalents should be less than ownership costs with owning a facility out of a multi building project vs. traditional office building rental. Unfortunately, the days of sub $5 PSF dirt for said developments are waning. The Houston area has seen a number of small user office park developments do very well. Primarily in Sugarland, Park Ten, the Woodlands and around a few of Houston’s expanding medical centers. As Obama’s economic plan unwinds, it is yet to be seen how it will affect the slow rebound in U.S. office markets.
Categories: Market Outlook
