Downtown Houston gains retailers, residential units amid office vacancy records - Housto... Page 1 of 6 SELECT A CITY SIGN IN CRANE WATCH HOUSTON LIMITED TIME OFFER Your Acco Check out HBJ's new and improved map Subscribe Now WELCOME Your Acco INDUSTRIES & TOPICS NEWS LISTS & AWARDS PEOPLE & COMPANIES EVENTS MORE… FOR THE EXCLUSIVE USE OF [email protected] From the Houston Business Journal: https://www.bizjournals.com/houston/news/2017/04/07/downtown-houston-is-in-the-midst-of-a- transition.html Cover Story Downtown Houston is in the midst of a transition that could change its DNA SUBSCRIBER CONTENT: Apr 7, 2017, 1:00am CDT When Brad Aiken, partner at Edison McDowell & Hetherington LLP, decided to relocate the Houston-based law firm to downtown from Greenway Plaza, not everybody was on board. “Initially, there was a bit of anxiety related to coming downtown,” Aiken said. “Most people at the firm had been downtown before and were initially pleased to get away.” The law firm was founded in 2009 as the result of a six-person spinoff JULIE SOEFER from Bracewell, which has its Houston offices in Pennzoil Place. Kristy Despite a record amount of vacant office space, new Williams, principal administrator at Edison McDowell and a founding retailers and residential units are on the rise in Houston’s Central Business District. member of the firm, said she and the other founders were ready to leave downtown and its related parking woes, traffic and the lack of restaurants and lunch options within walking distance. But since Edison, a roughly 50-person law firm, relocated in 2016 to 1001 Fannin, the downtown tenant experience has been largely positive. The building is just a few blocks away from Discovery Green and the George R. Brown Convention Center enhancements that Central Houston recently finished. Downtown traffic isn’t as painful as it used to be, Williams said, and the submarket seems busier after working hours. Overall, employees are enjoying the new restaurants and entertainment within walking distance of the office. “That wasn’t here before,” said Williams. “There’s a lot more energy and activity.” Even with many energy tenants having left downtown or downsized due to the oil slump, the area is bustling. “The longer we’re here, the more converts we have,” Aiken said. The submarket is largely considered a workplace, though, and the historic lack of downtown retail and parking with a still-growing, but lackluster, residential population have kept the area from taking off as a nighttime destination. http://www.bizjournals.com/houston/news/2017/04/07/downtown-houston-is-in-the-midst-... 4/11/2017 Downtown Houston gains retailers, residential units amid office vacancy records - Housto... Page 2 of 6 “Downtown Houston is not the tourist destination like New York, Chicago or Philly. It’s different,” said Jazz Hamilton, first vice president within CBRE’s retail brokerage services group. “Houstonians are still not thrilled about driving to downtown and paying to park. (Retailers) are still catering to the business traveler that’s down there because of their office space or a conference center.” However, the downtown submarket is in the midst of a transition that could change its DNA. New development An increasing number of retailers are betting on the area and hotels are cropping up left and right. There were 14 new retailers that opened in the fourth quarter of 2016, per a report from Central Houston, a downtown urban planning group. Just under 1,600 new residential units opened in 2016, too. Much of downtown’s residential development can be attributed to the Downtown Living Initiative, a tax incentive program created by Houston city planners in 2013. It led to a multifamily development pipeline of 5,000 apartments units. That program will continue to bring multifamily units – and, hopefully, residents – to downtown. Currently, roughly 3,200 units are either under construction or planned, per the report. Before the Downtown Living Initiative, roughly three residential projects were completed between 1980 and 2009. In the hospitality realm, approximately 1,680 hotel rooms delivered in 2016. A large part of that is due to the delivery of the Marriott Marquis, a 1,000-room hotel within walking distance to George R. Brown Convention Center, Discovery Green, the Hilton Americas and more. Hugo Ortega’s Xochi and Craig Biggio’s namesake sports bar, among other restaurants, opened in the hotel. Just down the street, the convention center wrapped up a repositioning effort that added new ground-floor restaurants and made Avenida de las Americas more walkable. “The amount of activity there, from a non-office perspective, has been pretty exciting,” said Transwestern’s Tyler Garrett, who serves as director of agency leasing at the Houston-based brokerage. “I think it’ll be a much more mixed-use area of town rather than the 9-to-5 weekday place it was.” The increase in retail and multifamily development is positioning downtown as much more of a mixed-use submarket; one where people live, work and play. A key component of a mixed-use area’s success, of course, is whether people live there. Throughout 2016, the area’s residential occupancy rate stood at roughly 66 percent, compared to a citywide average of roughly 89 percent, per Central Houston and Transwestern. Future of office buildings It’s hard to picture a viable future for downtown in which its office buildings remain just that – buildings solely dedicated to office space. Developers are mulling the idea of ground-floor retail in office buildings, as well as renovating older office buildings into entirely different properties, including multifamily, hospitality and more. Over time, those kinds of developments would strip away the idea that downtown is primarily a workplace. An increasing number of downtown Houston’s historic buildings – such as the Houston Bar Center, an old First Church of Christ Scientist property and Houston’s historic Melrose building– are being scooped up by investors that plan to develop properties that will keep downtown’s streets busy on nights and weekends. Many of the adaptive redevelopments underway in downtown are catering to visitors more so than potential residents, though. The properties mentioned above were developed into a Euro-themed hotel, a nightclub and a boutique hotel, respectively. http://www.bizjournals.com/houston/news/2017/04/07/downtown-houston-is-in-the-midst-... 4/11/2017 Downtown Houston gains retailers, residential units amid office vacancy records - Housto... Page 3 of 6 Flipping old, empty office buildings specifically into residential developments is picking up steam in Houston, but hasn’t fully taken off yet. “We all believe there’s a need for more residential in downtown,” said Bob Eury, executive manager of the Downtown Management District. Earlier this year, the former Texaco building at 1111 Rusk St., which sat empty since 1989, was redeveloped into The Star, a 286-unit luxury apartment complex. The trend of office buildings transitioning into residential properties has already taken off in many other cities, said Bill Fulton, director of the Kinder Institute for Urban Research at Rice University. “Houston has an amazing stock of office buildings downtown – both from the ’20s, ’30s and ’40s, and great buildings from the ’80s,” Fulton said. “In a lot of other cities, such buildings have flipped to residential.” “Confidence that we’re moving forward” The bright, dynamic downtown that Aiken and Williams are experiencing is just a taste of what the submarket could be. Downtown already has a lot of the framework in place – Fulton said the area’s sporting arenas, theater district and other large cultural venues are very strong compared to most other downtown corridors. The area will need around 10,000 residents to become the mixed-use district that developers are envisioning, Fulton said. “They’ll well on their way to that,” he said. Currently, downtown has 5,400 residents, per Central Houston. Once the submarket gets residents on the street, an enhanced offering of street-level retail would keep them there. The timing is worth considering, too – many downtown towers are vacant enough to justify adding street-level retail to the first couple floors. “I think it’s entirely possible that you’ll see retail pasted on the 1980s office buildings,” Fulton said. “It strengthens the retail component downtown and it strengthens urban design, because it’ll bring the buildings up to the street.” Bringing more retail to downtown is part and parcel of the Downtown Management District’s Plan Downtown initiative. In March, the Downtown Management District formed a 17-member leadership group to create Plan Downtown, a 20-year urban planning framework for the submarket. The last time such a group was commenced, it led to the development of Discovery Green, Avenidas Houston, the Downtown Living Initiative and more. Eury said the plan will re-evaluate the submarket’s identity as a 9-to-5 part of town. “What’s really happening to downtown is it’s becoming much more mixed in its uses,” Eury said. “The types of activities supported are activities that go on all the time – not just during the workday.” Whatever plan the leadership group develops will serve as a framework or script for future downtown development, Eury said. The general feeling among downtown Houston stakeholders is one of optimism and progress. Though nobody’s denying that the submarket has a long way to go before its potential is reached, it’s obvious to longtime developers that downtown Houston is poised for a recalibration. http://www.bizjournals.com/houston/news/2017/04/07/downtown-houston-is-in-the-midst-... 4/11/2017 Downtown Houston gains retailers, residential units amid office vacancy records - Housto..