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Everything’s Bigger in Texas and Real Estate Returns are No Exception

Job growth and economic recovery skyrockets Houston onto investor’s lists for 2013

HOUSTON, May 30, 2013 - The Lone Star state is no stranger to yield-seeking investors shying away from the inflated prices of many gateway markets. The Houston buyer pool has grown considerably in the past 18 months and the office, multifamily, retail and hotel sectors are reaping the rewards. In 2012, Houston witnessed $8.8 billion of investment, up 32 percent from 2011. The market continues to attract an array of foreign and domestic capital sources, and in 2012, the Association of Real Estate Foreign Investors (AFIRE) Annual Foreign Investment Survey Houston ranked fourth of all U.S. cities, and fifth globally, in terms of real estate investment dollars overall.

The market’s stout employment in 2012 saw gains of almost four percent above its previous peak; double that of the nations. Nearly 100,000 new jobs were added in the 12 months ending October 2012, a 3.6 percent annual increase. The city outpunches its weight, as it comprises only 23.7 percent of the state’s population but contributed nearly 35 percent of the state’s job growth. The long-term prospects are promising due to above-average population growth and further expansion in healthcare, distribution facilities and energy services.

“We will continue to see strong interest from the equity and debt markets to place capital in Houston. The low interest rates and attractive debt structures will drive transactions in the year ahead, and all property types will benefit from increased liquidity in the market. Real estate fundamentals will continue to be sound as supply and demand are in check,” said Tom Fish, Managing Director and Co-Head, Real Estate Investment Banking, Jones Lang LaSalle’s Capital Markets.

Last year, Forbes magazine catapulted Houston to the top of their list of America's Coolest Cities to Live, and the market’s strong job growth will drive population migration from surrounding states, particularly California. The multifamily market is likely to see more than 8,000 new deliveries in 2013, nearly triple that of 2012.  The increase in the number of new renter households will lead the country well into 2017.

Houston has also become a top choice for investment grade office space, as both foreign and domestic investors are drawn to the market. In 2012, private and offshore capital accounted for 62 percent of the transaction volume in the market. “The Houston office market is a value play still for investors, relative to the coasts. Sales activity is expected to remain solid in 2013 and beyond as institutional grade investors continue to canvass the Houston skyline for sound investment choices with stable ROI,” added Rudy Hubbard, Managing Director of Jones Lang LaSalle’s Capital Markets.

Houston’s hotel market posted the third-highest revenue per available room (RevPAR) growth rate among the country’s top 25 lodging markets in 2012. The city’s RevPAR increased by 14 percent, double the national growth rate. This year is off to a strong start, with RevPAR posting a further 13 percent lift over January 2012. “Bolstered by strong corporate and leisure demand, the Houston hotel transaction market reached $250 million in 2012, ranking 9th nationwide in terms of transaction volume. The investment market has remained relatively tempered, and it’s likely we will see larger deals in the year ahead,” according to Gilda Perez-Alvarado, Senior Vice President of Jones Lang LaSalle’s Hotels & Hospitality Group.

Texas dominates another Forbes magazine list, Where a Paycheck Stretches the Furthest.  Houston comes in first while Dallas-Fort Worth and Austin are also in the Top 10.Houston’s relatively low cost of living affords consumers a higher discretionary income. While retail fundamentals hit a speed bump in 2012, improvement is expected to gather steam this year, with rising demand and limited supply. In 2012, Houston witnessed more than a million dollars of retail assets trade hands with cap rates averaging in the low seven’s. “Long term, Houston should see one of the strongest demand recoveries in the nation, which will drive up retail rents through 2015, when increased construction will temper gains. The investor’s community continues to look towards retail as a flourishing asset class In Houston, as the market continues to expand,” added George Cushing, Managing Director of Jones Lang LaSalle’s Capital Markets.

Leasing activity is expected to increase in the near term as companies continue to seek out high quality existing space for their relocation or expansion needs. There is an anticipated 9.4 million square feet of leases rolling in Houston during the remainder of 2013 and 2014. “As we enter 2013, we anticipate solid leasing activity, decreases in the amount of vacant space, and increased pressure on quoted rental rates. Vacancy is approximately eight percent and is expected to decline in conjunction with increasing crude oil prices, growing employment figures, and no new product delivered for the central business district,” added Louis Rosenthal, Senior Vice President of Jones Lang LaSalle in Houston.

“If the recent $412 million sale of Williams Tower to Invesco is any indicator of investment appetite for core Houston properties, it is going to be a strong year ahead. We expect investment sales volume overall to show growth of 15-20 percent,” said Dan Bellow, Market Director of Texas for Jones Lang LaSalle. “All signs point to continued job growth in Houston, which ranked second on Forbes list of Best Cities for Good Jobs, due to its economic resiliency as the energy capital of the world.  In fact, the Texas Workforce Commission recently reported that Houston-area employers created more than 118,000 new jobs in 2012.  It’s a great time to invest in Texas.”  

Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2012 alone, Jones Lang LaSalle Capital Markets completed $63 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $60 billion in global investment sales and buy-side transactions, equating to nearly $240 million of investment trades completed every working day around the globe. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSale operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit