print header

# 1 Commercial Real Estate Information Company

  • Find Properties 
  • Market Properties 
  • Analyze Properties 
Commercial Real Estate News

More Than One-Quarter of Houston's Commercial Real Estate May Have Suffered Flood Damage

CoStar Analysis: As Recovery Phase Begins, Economists, Property Owners Take Stock of Catastrophic Flood Damage
August 31, 2017
  • An initial assessment of the potential impact of the epic storm on the Houston commercial real estate market by CoStar Group reveals that 27% of the market's gross leasable area, representing $55 billion in property value, is located in flood zones and may have potentially suffered damage.

  • $16 billion of the $55 billion in property at risk is comprised of apartment buildings within the 100-year flood zone.

  • Flooding in Texas and Louisiana affected nearly one-fifth of U.S. oil-refining capacity, sending gas prices higher and raising concerns for future supply.

    As the flood waters finally begin to recede in Texas and Louisiana, officials caution the storm waters continue to pose threats to life and property. However, the region is shifting into recovery mode and beginning to take a full measure of the unprecedented destruction brought by Hurricane Harvey.

    A CoStar Group, Inc. assessment of the potential impact of the epic storm on the Houston commercial real estate market reveals that 27% of the market's gross leasable area, representing approximately $55 billion in property value, was likely affected by flooding.

    Click to Expand. Story Continues Below

    Included in the estimated is 175 million square feet of commercial space located within the Houston metro's 100-year flood zone that appears to have been inundated by the epic floodwaters, including some 72,000 apartment units and 20 million square feet of office space. Another 225 million square feet sits in the wider 500-year floodplain and also appears to have been affected by flooding.

    Tropical Cyclone Breaks Records

    Harvey, which first made landfall at Rockport, TX, as a Category 4 hurricane early Aug. 26 and then stalled over the Texas coast, broke all records to become the wettest tropical cyclone in the contiguous United States, and the strongest in terms of wind speed to hit the country since Hurricane Charley in 2004. Weather experts have estimated that through Wednesday, the storms had dumped an estimated 20 to 25 trillion gallons of water on Texas and Louisiana.

    "Unfortunately, the number of displaced residents could be far larger than current media reports indicate," CoStar Group founder and CEO Andrew Florance said. "Our property-by-property review of the assets in the flood plain reveals an outsized share consists of low- to moderate-income households, including those in southwest Houston, where the bayous overflowed."

    Editor's note: Click here to view CoStar's microsite on Harvey's impact on Houston commercial property, including a map, charts and a list of potentially affected properties.

    Greater Houston ranks as the sixth-largest U.S. metro area in the U.S. by total CRE space at 1.6 billion square feet. A total of 12,000 properties with 400 million square feet of space are within the Federal Emergency Management Administration (FEMA) designated 500-year flood plain zone. Only 9 million square feet of that space, including 4,000 apartments, is located within a designated floodway.

    According to CoStar data, $16 billion of the $55 billion in property at risk is comprised of apartment buildings within the 100-year flood zone. The key question for all CRE owners, investors, tenants and analysts is now how much of that property has or will sustain damage due to water incursion.

    CoStar is planning to conduct an air survey to more fully assess the damage as soon as it is authorized to do so.

    The densely populated Southwest Houston submarket, home to more than 66,000 apartment units, is likely to be the district most affected by flooding. Nearly 30% of the submarket's apartment units are estimated to be impacted, with the Braeburn, Greater Fondren and Sharpstown neighborhoods having the largest number of units within the 100-year flood zone.

    Each of those neighborhoods borders Brays Bayou, one of the river ways that snakes through southwest Houston and has overflowed because of the historic torrential rains.

    An additional 5 million square feet of space is under construction within the floodplain, including 3,144 apartment units, representing about one-fifth of the 25 million square feet of CRE under construction in Houston, including more than 12,000 apartment units.

    The Greenspoint district, which has had elevated vacancies following the departure of ExxonMobil in late 2015, is the metro's most impacted office submarket, with some 3.5 million square feet falling within the 100-year floodplain.

    Few Definitive Damage Reports Yet Available

    Many CRE owners and managers had not yet been able to access their properties as of mid-week, let alone make a comprehensive estimate of losses from Harvey, which has dumped almost 52 inches of rain in parts of southeastern Texas. At least 37 deaths had been reported as of early Thursday.

    Pure Multi-Family REIT LP, a Vancouver-based multifamily REIT, reported that its 216-unit Boulevard at Deer Park property in the suburb of Deer Park southeast of Houston was placed under an evacuation order due to flooding in the immediate area. The company did not immediately have an assessment of potential damages.

    The company's second Houston property, the 352-unit Broadstone Walker Commons in League City south of Houston, Texas, was not materially affected by the storm, though they will continue to monitor the property. 10 properties in Dallas Fort Worth, four properties in San Antonio, and one property in Austin

    Pure Multi-Family REIT, which owns 10 properties in Dallas/Fort Worth, four properties in San Antonio, and one property in Austin, said it will make thorough inspections in coming days and weeks to assess the extent of any damage.

    "We anticipate that it may take weeks to adequately assess the damage, if any, at our two properties in the Houston area," said Pure Multi-Family CEO Steve Evans. "As a normal course of business, Pure Multi-Family has insurance policies in effect at all of our apartment properties."

    "It is going to take some time for the extent of the damage in the greater Houston area to be fully understood," Evans said.

    A number of REITs and other CRE owners issued statements providing update on their Houston-area properties and efforts to help staff and tenants, with companies reporting they have adequate property and casualty insurance coverage in place, and that wind and rain was hindering damage assessments, including single-family home rental firm American Homes 4 Rent, which owns about 3,200 rental houses in the Houston market area.

    "Our assessment will be ongoing for several days," said American Homes 4 Rent CEO David Singelyn.

    Oil, Gas Line Damages to Drive up Gas Prices

    Walter Kemmsies, a managing director, economist and chief strategist for JLL’s U.S. Ports, Airports and Global Infrastructure Group, tells CoStar that direct and indirect damage from the catastrophe, while not yet known, will certainly have an impact that ripples across the country.

    Damage to oil and gas pipelines will cause supply problems that will result in increased fuel prices across the U.S., a process that has already started. With more than a dozen refineries closed due to flooding, the national average hit $2.43 per gallon as of mid-afternoon Wednesday, up 7 cents from a week ago, according to consumer information site

    From the perspective of impact to U.S. seaports, Harvey is comparable in magnitude and impact to hurricanes Katrina and Sandy, while farmers will need to assess agricultural damage to crops that were going into the late-summer harvesting season.
    JLL Managing Director Walter Kemmsies said seaports such as Port Houston could feel the sting of Hurricane Harvey economic impacts.

    "All of this happening before the cresting of the flood waters," Kemmsies said. "And that water still has to drain (before the extent of the problems is known). We’re all just biting our nails."

    As a result of the Panama Canal expansion and increased downstream demand in recent years, port volumes and industrial real estate demand are higher than ever in Gulf Coast ports, Kemmsies noted. At Port Houston, for example, 20-foot equivalent unit (TEU) volumes increased from 4.6% to 5.2% of total U.S. TEU volumes from 2010 to 2017, he said.

    Under contingency plans that go into effect at the first warning of a hurricane, cargo slated for export would have been rerouted to other upland ports, and Port Houston could see reduced shipping volumes because Hurricane Harvey will likely disrupt railroad connections as far as a couple of hundred miles away, Kemmsies added.

  • GET IN TOUCH        Contact CoStar News Team:

     Find us on 

    Welcome To CoStar's
    Award-Winning News

    Winner of three Journalism Awards from the National Association of Real Estate Editors (NAREE)

    Award-Winning News