Houston top five global city for real estate investing

Strong property investment interest from firms outside the US has propelled Houston amongst the top five global cities for the first time last year, according to an annual survey by the Association of Foreign Investors in Real Estate conducted since 1994, Bloomberg reported on March 26. The fourth largest city in the US appeals to foreign property investors with lower costs and higher returns compared with the priciest US cities, the newswire noted.

A top-tier market
According to New York-based market researcher Real Capital Analytics Inc., foreign companies were the largest net buyers of any investor class, spending four times more than US REITs, which came in second. The increased international interest has created “true international feeling” in the fast-expanding energy hub and also benefited other sectors of the local economy, explained Greg Kraus, managing director at Atlanta-based Invesco Ltd. (IVZ). “Houston has gained broad acceptance as a top-tier market,” Kraus said, as quoted by Bloomberg. “It’s reflected in job growth, more gas refineries, more oil out of the Houston port and a true international feeling.”

A recent rise in US oil output and oil exports have deepened Houston’s status as the U.S. energy capital. Increased sea and road traffic to rising markets in Latin America also is prompting the world’s biggest oil companies to expand in Houston.

According to Jim Fetgatter, CEO of the Washington-based foreign real estate investors association, energy-related job growth is the main draw for overseas capital. Houston had the fastest-growing large metropolitan economy in the US for two straight years, with a 3.8 percent jump in gross domestic product in 2011, Bloomberg said. Unemployment last year fell to 6 percent from 7.2 percent in 2011.

Office Property Most Sought After
Houston’s office property sector has grabbed the lion’s share of the foreign property investment capital, accounting for 45 percent of investments by non-US buyers since 2007, according to data from Real Capital. Overseas investors poured $2.83 billion into office buildings in the past three years, the market research firm revealed. One of the areas most targeted by investors is the Galleria district, home to many of the city’s high-rises and high-end hotels, as well as the eponymous Galleria mall – a shopping centre comprising of 2.4 million-square-foot (223,000-square-metre) of mixed-use space.

Some of the biggest foreign investments in the office sector include the 2011 acquisition of Hess Tower by Toronto-based H&R REIT for $524 per square foot – record price for Houston downtown that values the whole building at $442.5 million - and last year’s $227 million investment from Munich-based Allianz SE, which bought a 49 percent stake in four Galleria towers.

The City Lures Overseas Investors with Low Costs and High Returns Purchases from US buyers included, office sales in Houston increased by 32 percent to $3.89 billion in 2012, the highest in five years. That compares with the 21 percent increase nationally, according to Real Capital. One of the most recent acquisitions by US buyers came from Invesco, which this month bought Williams Tower, located in the Galleria district for $412 million. The property, which at 909 feet (277 metres) is the third tallest building in the city, is 95 percent leased, Bloomberg said.

Rents reach record levels as occupancy soars
In addition to rising office sales, rents in the city also increase rapidly. Average rents for the most desirable offices in the Galleria district rose 11 percent to record high $32.02 per square foot in 2012, according to the world’s largest commercial real estate service company CBRE. Downtown rents for Class A space also came close to record last year at $39.60, a 3.7-percent increase from 2011. Occupancy in the city for the same period gained 4.3 million square feet, the most since 2006.