Courtesy Visit Houston

Central Houston President Bob Eury has been tracking COVID-19 case counts since the early days of the pandemic and has the spreadsheet to prove it. It was a ritual that he says helped him stay on top of the virus and how far off “normal” might be. But there may be one number he is tracking even more closely: how many of downtown’s estimated 168,000 workers are returning to the office. 

If a widespread return to work does not materialize, the Houston region’s largest employment center could face some difficult days ahead.

Spikes in vacancy rates could eventually lead to tumbling property values, but could also spur a new wave of redevelopment that builds on downtown’s momentum in becoming more of a residential and cultural destination. 

I spoke with Eury to learn how downtown is positioned to become an even more thriving community—with or without offices in full swing. The interview has been edited for clarity.

Urban Edge: What is your sense of how many of downtown’s office workers are returning? 

Eury: We have an ever-growing list right now of companies that are beginning to come back. One inflection point is the end of the school year, when more companies begin to say, “OK, it's time to begin to come back.” And then the next inflection point, I believe, will be the end of the summer, the beginning of the next school year. 

Obviously, the rate of vaccination is playing a huge role in this. The good news is that we’re seeing high levels of vaccination even without most companies requiring it. 

We have been tracking the return to work almost since the beginning of the pandemic, after the lockdowns. At the beginning, at its lowest, we were seeing about 13% were in-person. It increased to approximately 16% and was like that for months. As of late May, we were at 23%. 

I think you'll see a jump in June. I don't believe it will be 50%. I'm guessing it will be more like, probably 30%, maybe 40%. But the reason why I say that is, while we're seeing more of a return to the office being discussed, the big question that’s still out there is how permanent is the change in how we work, and nobody knows the answer yet. Whatever happens, ultimately, will have a huge effect on downtown, no doubt about it. 

Exactly. In a recent column for Bloomberg, Richard Florida offered the view that with an exodus of office workers, it opens up a new opportunity to reimagine downtowns as residential and cultural destinations, and adaptive reuse of buildings. What’s your take?  

Well, it makes a lot of sense. The fact is downtown is a meeting ground for everybody. Everybody comes to it, and everybody kind of feels like they own it—rich and poor, all colors and walks of life. It’s the place where, when we celebrate in Houston, this is where we gather to do it. But it’s also the place, when we want to protest, such as protesting police brutality and what happened to George Floyd last summer, this is where we do it. 

And so, in a lot of ways, we’re on that track already, of being a community and a community asset. But I just thank God we are where we are with the redevelopment of downtown just as we are coming out of COVID-19. If we had been where we were several decades ago, it would not be a pretty sight.

It’s walkable. We have all modes of transit. And it already is more residential and more tourism-oriented than it ever has been. It has a great restaurant scene, and of course arts and culture. A lot of that has been here for some time, and these assets will continue to grow.

It is so much more than an office park, but you know, we have over 51 million square feet of office space. It's huge, bigger compared to any other place in the region. What you’re going to see is more adaptive re-use, but it’s going to take time. 

Some of those buildings are owner-occupied—Chevron is a good example—but then, of course, many of them have to seek new tenants. There won't be an immediate shift in those, either, because you've got the lifespan of leases to think about. It is very common in office leases to see 10, 15, 20 years. This could pose an interesting situation for tenants if there's a permanent shift to remote working. 

There are implications of that where, the shift of work also represents a big shift in the economics of downtown. If workers do not come back, it's ultimately going to have a very big downward impact on the tax base, which would have fiscal implications for the city, the county, and Houston ISD. And it’s material, because downtown and other major employment centers represent a sizable portion of assessed value for these entities. That would happen if the buildings have higher vacancies resulting from less space demand. 

Having 40-50 story towers sitting on very expensive land creates incredible density of value. There’s always some change up and down in values, which is normal as the office market changes, but a fundamental shift in how we work could create far larger change. 

Downtown’s revival could be determined in part by the convention business, and early indications of its return are promising. How big is tourism going to be a factor? 

We have 29 hotels downtown with one underway, a redo of a 1923 office building. Including that property, 11 buildings built as offices have been converted into hotels. This adaptive reuse is feasible when you have a building with architectural character but no longer is cost effective as an office building, particularly older structures. 

There was a point in the late 1990s, when we had only four hotels downtown; so think about how far we’ve come. But with hotels, you couldn't build that many if we didn't have the simultaneous development of our convention center. The Marriott Marquis (2016) and the Hilton Americas (2003) are a key part of the equation because their large size enables them to serve as the headquarters for conventions. The economics are challenging because of the sheer size of their operations. You have periods of time where most of the facility is not being fully used, but then when you have a big convention, you're sold out. Fortunately, under state law there are provisions for tax rebates to make the economics work.

Houston has done a really good job of advancing from being an also-ran in the national convention and hotel market, to being a real competitor. 

But we won’t see a full hospitality revival unless there’s the business traveler, and if you don’t have anybody in offices during the pandemic, you don’t have much business travel. So honestly, the only thing keeping those hotels going has been leisure business. The idea of the weekend staycations has worked very well—normally the downtown hotels have high occupancy during the week and terrible occupancy on the weekends. This flipped in COVID. The weekends continue to be very important for downtown hotels, and fortunately the number of meetings and conventions for the rest of the year is growing. 

We've lost some restaurants, and there's still some that are closed but plan to reopen. But we've also had really great new restaurants that have opened, which is exciting because they opened at a time when really, there is a lot of trust that downtown will be coming out of the pandemic OK. 

The other big part of the mix for downtown is public events. Discovery Green normally hosts over 500 events a year, large and small. The Downtown District also does event programming at Market Square, and the City hosts many events at Hermann Square and Sam Houston Park. As we come out of the pandemic, events and programming are returning. And so are our Rockets, Astros, Dynamo and Dash games, and our Theater District performing arts organizations will be returning this fall. All of these are great for business—an Astros game, for example, brings in people from all over the region and beyond. 

You mention the growth of residential—how can downtown become more of a neighborhood, particularly if office buildings stay empty and could potentially be repurposed? 

As of right now, we have 41 residential buildings downtown, and—keeping adaptive re-use in mind—12 of those 41 were offices that were converted to residential over the years. It doesn't happen quickly. 

With these conversion projects, the property has to get to that point where economically, somebody finally says there's got to be a new direction, a better use economically. And then the economics have to work right in order to make that happen. We, through the Downtown Redevelopment Authority, the Downtown District and the city, have developed financial incentives that have made the economics work to enable redevelopment.

New construction is underway, with five projects bringing about 1,300 units, which will get us over 7,000 units total. There has been a lot of talk about a move to the suburbs, but there is a very large portion of the population that remains very interested in living in the central city. All you have to do is just take a walk a few blocks outside downtown, and then you've got townhouses everywhere. There’s now a huge population near downtown that’s been growing rapidly. 

How do you see the area being able to be more affordable, not even just for low-income residents but also that middle-market segment? 

That's a very good question. We certainly would like to do that. Part of it is finding the right project. We're working on one right now where we might be able to help a developer do something like that. But we're not quite there yet on making the numbers work.

We had a downtown living initiative in place starting in 2012. The goal was to make it such that the building’s added value created the tax revenue that, in turn, could fund the incentive for doing the project. So in other words, we weren't using money from anything other than a portion of taxes the project was paying. But when you do that, what we found was, to make it work, the rents needed to be at market rate, because of land prices, higher development costs working in the tight downtown grid, and the type of building—usually high- or mid-rise.

It became really challenging to offer a deeper subsidy. As we go forward, affordability does matter, and we do care about it. We are searching for how to really put that type of deal together. 

If we want to expand the base of residential, we're going to need that missing piece. We have some housing for individuals who have been homeless, for example. Then we have higher priced high- and mid-rises at the other end of the spectrum. So there still is a considerable gap in the middle.

Construction certainly has not slowed down during COVID-19. What’s in the pipeline for downtown?

We have over $1.9 billion in construction underway. In some cases, the lack of activities and traffic because of COVID-19 has allowed us to move faster. For example, we are just finishing the rebuild of Bagby Street, and we're about five months ahead of schedule, just because we didn't have to deal with traffic. 

We’ve broken ground on a new neighborhood park, Trebly Park, on the south end of downtown that will be ready a year from now. Houston First Corporation has now broken ground on the revamp of Jones Plaza, which will become the Lynn Wyatt Square for Performing Arts, a wonderful green space for the heart of the Theater District. 

Office towers are coming in too, with the Hines Texas Tower nearly ready and its residential tower, Brava, coming along right behind. Skanska will break ground later this month on its 28-story tower by Discovery Green. 

What's so exciting about all of this, and one thing we're trying to do, is reconnect the population that hasn't been downtown in quite a while to come back. When you come back, you're going to see a place that's different from what you thought it was, or what it was when you left. It's been changing rapidly, because construction didn't stop. It just kept going.

 

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