Houston Strategies

Followup on downtown office building conversions

Steve emailed me some interesting thoughts on my earlier post about downtown office building conversions, so he's today's guest blogger (emphasis mine):

My own theory about the lack of housing development in our downtown coincides with yours. From my work with interests in downtown Houston a significant issue is landowners of parking lot or underdeveloped properties who are unwilling to invest or do a deal. This is stemming at least partly from the idea that their property will be the next 30-story office tower (or higher). In reality, barring another one-off boom like we had with the energy trading industry (or non-industry, as it turned out), large-scale new office space downtown is a long time in the future (there’s a couple smaller-scale projects happening right now – the Stowers office condos and the Cordish project at Bayou Place, which is not under construction but planned for the near future). They could do residential, either a conversion or ground-up, probably much sooner. But they don’t seem willing to “settle” for residential right now. Besides, the parking lot owners get too much interim income to feel much pressure. Contrast this with Uptown, where there is little to no talk of any more office buildings – the development world has moved on to residential and deals are done accordingly. (No surface parking pay lots either.) This may reverse a little after freeway construction is completed and Uptown gets better regional transit access, but the residential momentum will be hard to stop. I haven’t researched this but it seems like a reasonable theory.

Dallas is a fairly extreme example where the geographical migration of business activity and affluent residences has made their downtown peripheral, not central. Even with good freeways and transit, it’s hard for Downtown Dallas to compete with the suburban centers in terms of access (though it doesn’t take long before they’re congested and inconvenient too). Even more “central” downtowns like Houston’s, along with urban core activity centers like Greenway Plaza and Uptown, face the same challenge. Downtown Houston has been lucky to have had tremendous investment in highways and park-and-ride service that have been a savior to office demand. But when your key employees with school-age children mostly live in Fort Bend, Katy, Cy-Fair, and The Woodlands, the lure of the middle and outer ‘burbs to employers is strong. The Dallas market has adjusted by building offices on the fringe, now attracting urban-style town centers to accommodate those who work at these companies but still prefer a denser environment. This is starting to happen here now too. My prediction: just wait until the Grand Parkway is finally built and is the most direct connector between the top residential suburbs. Then we’ll really see office migration. Hopefully by then downtown Houston will finally have started to build some residential and get its own momentum going.

I'm not sure I totally agree on the effect of the Grand Parkway. Certainly there will be some offices along it, but it's such a large square (rather than a circle), that it won't be much of a direct connection between Sugar Land and The Woodlands. The Woodlands to Katy would be something like a 50 mile one-way commute, plus tolls, which is really pushing it. Maybe a new office cluster at 290 and the GP, which is commutable from The Woodlands, Sugar Land, the west suburbs, and the core - but I think that's within Houston annexation range.

posted by Tory Gattis @ 6:23 PM