CDS Community Development Strategies
Place-oriented developments create value by providing a mix of activities. These activities might be structured, for example watching a free concert, partaking in an exercise class, or visiting a farmers market. Or they may be unstructured, such as watching children play, window shopping while strolling, or people-watching at an outdoor café. The key is that the typically mixed-use development is deliberately designed to integrate the components around a common or public space where walking and lingering are comfortable, and visitors are not required to buy anything or pay admission.
Mixed-use developments with office uses aren’t necessarily new in Houston. Hines built The Galleria in the early 1970s. It included three office buildings, later augmented by the Transco Tower, (connected via skybridge (later renamed Williams Tower), along with hotels and its indoor retail mall (expanded four times). The Houston Center development in Downtown included a mix of the same three uses, with more emphasis on office. Greenway Plaza also featured multiple uses, though its retail component was relatively limited. However, these projects had all appeared by the early 1980s, and none truly offered a non-enclosed public (or publicly-accessible) space outside of mall or food court corridors. After the economic crash of the mid-1980s, development of such projects also ended in Houston, for a couple decades or so. While these projects have been considered landmarks with Class A office properties, none of them was necessarily considered truly the most desired or prestigious office property in which to locate (except for Williams Tower).
The Future for Mixed-Use Office Developments
The recent economic boom in the region has resulted in significant new office construction. The Energy Corridor District has shared in this new supply. However, its new office buildings, while being of very high quality in and of themselves, have taken the form of stand-alone, mid to high rise, generally single-use projects which lack a “place-oriented” component. Some of this may be due to the District’s traditional office tenant profile of upstream oil and gas companies, and this industry’s technical service providers, which are sometimes viewed as preferring more standard office properties, or even isolated campuses such as those built by Conoco and Shell Oil in the 1980s. (Conoco Phillips has left old campus and moved into one of the new stand-alone high rises.)
This contrasts with some other high-profile office construction in the region. A new Hines high rise building called CityCentre located in west Houston has made a deliberate effort in its design to engage with the adjacent public street and sidewalk. CityCentre is accreting new buildings onto its mixed-use core, and will also add more retail to accompany it, along with a recently completed new multifamily complex. The River Oaks District and Kirby Collection contain moderate-scale “boutique” office uses. Most notably, the Springwoods Village development near The Woodlands has attracted the headquarters of Southwestern Energy and will build two new office buildings in its walkable mixed-use core to accommodate relocations of major tenants the American Bureau of Shipping (ABS) and HP. Furthermore, ExxonMobil built its campus there; while the campus itself is not publicly accessible, it is telling that it is directly adjacent to the “place-oriented” core of Springwoods Village. A high-profile office broker noted to CDS that the ABS and HP relocations, with their build-to-suit projects, occurred during a time in the office market when they could have taken advantage of numerous high quality buildings with plenty of available space and favorable lease terms.
North Texas projects such as Legacy (especially Legacy West) and CityLine further emphasize this trend. Those developments have featured some of the highest-profile anchor tenant relocations in that region, such as State Farm, JP Morgan Chase, and Toyota. It is interesting that in both Houston and North Texas projects, the emphasis is usually on low to mid rise office buildings, rather than high rises.
So, what might this mean for the future of office growth in The Energy Corridor District? That’s a question CDS has been pondering in its new projections for the District, meant to reflect a “generation” in the future, which has traditionally meant approximately 25 years. Will the District’s office tenant base seek out more “place-oriented” developments? Will a broader range of industries choose to locate in the District if such environments are available? Both vacant and redevelopment sites are available to implement that sort of development vision. In fact, one developer is already trying to do so; Third Palm Capital, the owners of the office property previously home to Exxon Chemical Americas, are seeking to turn the formerly closed campus into a more publicly-accessible and multi-use community called Republic Square, including social events, artist spaces, and potentially even retail uses; the property also benefits from adjacency to the popular Terry Hershey Park. Their project is yet in its infancy but there are already signs of potential success, with office leases being signed and strong attendance at public events. Will Republic Square be just the first of several “place-oriented” developments that reshape The Energy Corridor District activity center? What about other activity centers, such as Westchase, Upper Kirby, and Greenspoint? Will new activity centers emerge (perhaps the future Bridgeland Town Center and Towne Lake Town Center?) that are wholly based on the “place-oriented” concept?
About the Author: Steve Spillette is President of CDS Community Development Strategies and has performed a variety of market studies and financial pro-forma analyses for both private and public clients. Mr. Spillette has several years of experience in retail market analysis and multiple degrees related to real estate and planning--including an MBA from Texas A&M University.