Retail Rebrand, Office Amenitization in the Works

HOUSTON—The Galleria/Uptown submarket has a daily population of more than 200,000 people and 30 million annual visitors. The area includes 6 million square feet of retail space, 100-plus restaurants, 7,800 hotel rooms and 32.2 million square feet of office space.

An office and retail complex totaling 195,853 square feet in the Galleria/Uptown district recently sold to Houston-based Braun Enterprises for an undisclosed price. The site is currently improved with two six-story office buildings, a single-story retail building and a two-story parking garage.

The property is located at 5353 and 5373 West Alabama just west of the renowned Galleria shopping mall and within minutes of Interstate 10, Highway 59 and the 610 Loop. Additionally, the property is close to the residential neighborhoods of Tanglewood, Afton Oaks and River Oaks, where home values average more than $1 million.

Braun Enterprises, known for redeveloping inner-city retail and office projects, plans to extensively renovate the office buildings’ interiors and exteriors along with a complete redevelopment of the retail space.

“With over 35,000 square of retail space, the project lends itself well to being rebranded and redeveloped into a first-class retail project that will amenitize the office buildings above as well as neighboring properties,” Zachary Wolf of Braun tells GlobeSt.com. “We plan to utilize our retail expertise to elevate the tenant mix and are already negotiating with several great concepts.”

An HFF team represented the seller, WEDGE Properties Management Corporation, and procured the buyer. The HFF investment advisory team representing the seller was led by managing director Davis Adams and included senior managing director Wally Reid and managing director Kelly Layne.

Houston office fundamentals are expected to remain stubbornly in neutral again this year as the balance of supply and demand stays consistent, according to a recent report by Marcus & Millichap. Office construction has been outpacing absorption, enabling office space users to slowly move up the quality ladder as leases conclude.

This trend could ease slightly in 2019 as leases signed during the early stages of the recovery are set to expire. Average marketed rents are more than 15% higher than seven years ago, encouraging tenants to consider the financial commitment when upgrading space. The maturity of the economic expansion and market turmoil during the fourth quarter of last year will also support greater caution when office users consider a move.

Furthermore, the price of crude oil declined at the end of 2018 and has failed to reach levels that would initiate additional space demand. Operators, meanwhile, are expected to be generous with concessions to retain existing tenants, particularly those willing to renew space commitments for five years.

A cautious buyer pool is expected to reward aggressive, albeit diligent, investors in 2019. Assets primed to perform well during uncertain market conditions should attract buyers when available. Location and leasing rosters will be the two key factors that determine investor demand. Listings near major thoroughfares and insulated from the threat of new supply should attract buyers with long-term hold strategies. Additionally, properties with more than 50% of the tenants committed beyond 2021 will garner buyer attention, though the creditworthiness of those tenants will be scrutinized, says the Marcus & Millichap report.