Foreign real estate investors are attracted to the Houston housing market. The energy sector in Houston is expanding fast and that’s luring buyers from Tel Aviv to Toronto to the local commercial real estate market. The Houston market is currently offering properties with lower prices and higher returns than any other city in the US, including the priciest cities.
Last year, office sales increased 32 percent to $3.89 billion. This is the highest total in the last five years. Houston was the national leader last year as the entire US only experienced a 21 percent gain, according to Real Capital Analytics.
Houston’s Galleria office district experienced an increase of 11 percent in office rent amounts in the fourth quarter, over the previous year. The going rate is $32.02 a square foot and this is a record high. Allianz SE, a Munich-based company, bought a stake in the Galleria towers for approximately $227 million last year.
According to Real Capital Analytics, Inc., in the last three years, companies from outside the US have acquired $2.83 billion of office buildings in Houston. These investors spent four times more than US real estate investment trusts (which ranked second). They were the largest net buyers of any investor class. For the first time ever, Houston was listed as one of the five global cities in a survey by the Association of Foreign Investors in Real Estate, which started in 1994.
Greg Kraus, managing director at Invesco, Ltd. (a global advisor for pension clients) said, “Houston gained broad acceptance as top-tier market. It’s reflected in job growth, more gas refineries, more oil out of the Houston port and a true international feeling.”
The real estate boom stretches from boutique offices in the Galleria area, to downtown high-rises to the Energy Corridor along the Katy Freeway.
Office buildings are being favored and made up 45 percent of foreign investment buyers since 2007. Toronto-based H&H REIT paid $442.5 million in 2011 for Hess Tower downtown. That was a record high of $524 a square foot for Houston, according to commercial broker CBRE Group, Inc. Tel Aviv-based Menorah Mivtachim Holdings, Ltd. And Psagot partnered with Florida-based Beacon Investment Properties, LLC and bought One City Center for $131 million, according to Real Capital.
This month, Invesco closed on a $412 million purchase of the Williams Tower (909 square feet). The property is the third-largest building in Houston. It’s 95 percent leased, located in the Galleria area surrounded by high-end hotels and the largest mall in Texas, The Galleria Mall.
The main attraction for foreign investors is the energy-related job growth, according to Jim Fetgatter, CEO of the Washington-based foreign real estate investors association. Dan Fasulo, managing director of Real Capital said, “Houston’s energy story is so compelling, and the really big, smart money that knows that industry are all in that town. It’s cheaper than New York or San Francisco and you can get better immediate returns.”
Donald Wise, CEO of Seattle-based Metzler Realty Advisors, Inc. said, “Houston has risen to the top of the pile as investors look for good current returns with reasonable appreciation. It’s a good place for knowledge workers to live, and energy production is much broader than it was 30 years ago.”