Commercial Real Estate is Recovering

• Houston, TX - December 30,2020
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This year is ending much differently in commercial real estate than it started. Deals, designs and development all reflect the new normal of post-pandemic business as commercial building owners and tenants proceed cautiously and protect against future risks.

The local office market had yielded almost -3 million square feet in net absorption through the third quarter, according to CBRE’s Houston Office Marketview. The construction pipeline had also dwindled, shrinking to 4 million square feet of office space as of the end of the third quarter, according to Avison Young’s Office Market Report.

It’s not hard to see that major transformations are underway.

Corporate Interiors Now Look Different
Firms like O’Donnell/Snider Construction are seeing tenants extending leases for just a few years rather than locking into long-term commitments. “They’re renewing in place so they don’t have to make a move right now,” said Trey Snider, co-president of O’Donnell/Snider Construction. Contemplated improvements that tenants make now focus on new ways of working during the Covid-19 pandemic and beyond. Companies are widening hallways, creating private offices and adding sanitization stations, for example.

Some tenants are scaling back their plans for office space because they plan to continue to work remotely, said Randy O’Donnell, co-president of O’Donnell/Snider Construction. “But other clients say we don’t want to lose our culture from people working at home, so we want more space.”

Capital Improvements Are Still Being Made

Building owners are upgrading their facilities to better compete for tenants that want high-end space. Many older properties have struggled in recent years as a slew of new office buildings have been built or planned.
“People who owned older office properties knew they needed to get in the game or lose out,” O’Donnell said. “It’s all about having a pleasant experience when people arrive at your building and your office.”

Improvements like renovated lobbies and new fitness centers make older properties more appealing. “The capital improvements that people are investing in are necessary to compete with the new buildings coming up. The amenities they provide their tenants can be a differentiator,” Snider said.

Healthcare Facilities Are Changing
Hospitals compete for doctors and patients like the owners of older office buildings fight for tenants — by updating their facilities. “People prefer new feeling facilities,” O’Donnell said.

Hospitals are also updating to be as fresh, clean and germ-free as possible in the pandemic era. They are accommodating for social distancing among both workers and patients, for example. Isolation areas for patients who may be infected with Covid-19 or similarly dangerous illnesses are also more common.

“There’s a lot of thought about how providers interact with patients and how they are going to set up to comply with Covid or future pandemic protocols. A lot of consideration about how health care is delivered is reflected in these designs,” Snider said.

New Construction Varies By Sector
Developers are giving a lot of consideration to any new construction during the pandemic. Retail development is on a particularly long pause.

Office developers are also reluctant to start projects because they want to avoid a glut like that of the speculative “see-through buildings” of the 1980s, which were so dubbed because one could look in one side and see out the other since whole floors were empty, O’Donnell said.

But industrial development remains strong, and so does new construction of boutique buildings designed and built specifically for particular tenants.

Public projects such as schools, fire stations and municipal buildings keep coming as well. “This is an area where we will continue to see investment,” Snider said.

Competition for new projects is fierce. General contractors are pursuing markets that they would not normally compete in, and hungry subcontractors are driving down prices to get work.

Covid Lessons Will Remain
Though the Covid pandemic has disrupted Houston’s commercial real estate market in many ways, it has also taught some valuable lessons — namely, that a contractor like O’Donnell/Snider, which is celebrating its 30th year in business, can remain productive and punctual even during a pandemic.

“We learned that we can operate at 100% normal production and efficiency,” said Marc Perilloux, chief operating officer of O’Donnell/Snider Construction. “Even though this has been a huge curveball for everyone, we’ve been able to go with the flow and adjust our safety protocols without impacting our productivity.”

On only one of more than 100 construction sites has O’Donnell/Snider Construction had a shut down — and that was only for a short time. “We’ve had no outbreaks on our projects and single-digit cases of Covid. None of them have spread,” Perilloux said.

O’Donnell/Snider Construction has kept hitting deadlines even though it has made adjustments like limiting the number of people in a freight elevator at a construction site, restricting the number of workers on a floor and assigning only one painter to a room at a time instead of two. “We’ve learned to be nimble, and we adjust quickly,” Perilloux said.

Perilloux expects the lessons they’ve learned both on and off the construction site, like how to maintain productivity among office employees working remotely, to pay off in the future as well. “[The market improvement] will happen sooner than many think, given that Texas and Houston are resilient,” he said.

O’Donnell/Snider Construction (OSC) is a Houston-based construction firm founded in 1991 by industry peers Randy O’Donnell and Trey Snider. We build corporate interiors. We construct health care and research facilities. We deliver value and safety for capital improvements and new construction projects. Our goal is to provide an exceptional experience for our customers, subcontractors and partners.

Jim Molis is a contributor for The Business Journals Content Studio.