Ryan Hartsell, Managing Partner, Oxford Partners LLC

Invest: sat down with Ryan Hartsell, managing partner at commercial real estate services company Oxford Partners LLC, to discuss Houston’s office and industrial markets, tenant representation, AI, construction costs, and changing client expectations. “It’s all about the location,” Hartsell said.

What is shaping Houston’s office market?

A great deal has changed since COVID. Working from home is still part of the discussion, but commute time and amenities increasingly drive decisions. Many executives want employees back in the office, while employees are focused on how long it takes to get there and what the building offers. It’s all about the location.

Houston is seeing a flight to quality and preferred submarkets. Downtown and Greenway Plaza are difficult for landlords because employees may face hourlong commutes. In the Galleria area, being even a few blocks from the freeway can add 15 or 20 minutes just to reach it. Many companies have moved from the urban core to suburban markets. Sugar Land, Fort Bend, Katy, The Woodlands, and northwest Houston have benefited.

Some older or poorly located buildings have high vacancy and are selling for 25% or 30% of their pre-COVID values as debt comes due. Overall office vacancy is generally reported around 20% to 25%, although I believe it may be closer to 30%. Newer buildings and heavily renovated properties built after 1990 perform much better, with vacancy around 13% to 15% and sometimes lower.

Tenants want lounges, fitness facilities, dry cleaning, conference rooms, restaurants, and walkability. Well-capitalized buildings can add those amenities, while older or overleveraged buildings cannot. Performance therefore varies dramatically. Some submarkets approach 40% or 50% vacancy, while MetroNational’s Memorial-area portfolio has been around 4%, with rental rates rising roughly 45% over five years.

How does the industrial market compare?

Industrial is also bifurcated. Houston’s overall industrial vacancy is about 7%. Smaller shallow-bay facilities—roughly 8,000 to 30,000 square feet, including metal-frame, manufacturing, and crane-served buildings—have vacancy near 3% to 4%.

Large distribution buildings of 100,000 to 500,000 square feet are somewhat overbuilt. Houston has approximately 29 million square feet under construction, and roughly 75% to 80% is not leased. That gives some users opportunities to negotiate better terms.

Houston is enormous, with different industries and operating needs across its submarkets. Shallow-bay manufacturing space is in high demand and short supply, while big-box distribution has more availability. Distribution users may prioritize clear heights and power. Some need port or rail access, although rail-served properties are limited. Companies serving residential construction often need locations in west or northwest Houston because development continues to push farther outward.

How has Oxford Partners scaled while remaining specialized?

It is difficult to do anything well without a narrow focus. Many competitors provide landlord representation, tenant representation, development, capital markets, appraisal, property management, and services across multiple property types. We focus only on office, industrial, and healthcare tenant representation.

I see myself as a service provider to our agents so they can provide excellent service to clients. At many brokerage companies, agents are running a business within a business. They serve clients while also generating business, preparing paperwork, handling finance and administration, and conducting research. Some firms have six agents for every transaction manager.

We have invested in transaction management and can provide closer to a two-to-one ratio. We combine in-person American transaction managers with remote employees from other parts of the world. We also have in-house marketing, finance, administration, research, and data-entry support. That creates more consistent quality and lets agents concentrate on clients.

We generate inbound business and distribute it among agents, reducing some of the pressure to build every opportunity independently. We also recruit and train new people, then place them under senior agents. It takes significant time and is a loss leader for roughly the first two years, but we have become effective at building teams for experienced agents.

How significant will AI be for commercial real estate?

I have been in the business for about 19 years, and have watched multiple technologies described as disruptors. AI is different. It is already reducing the number of analysts some firms need while increasing their output. I believe it will eliminate certain jobs, even though it will eventually create others. There may be 10 to 15 difficult years while the market adapts and those new roles emerge.

Oxford plans to retain its people and continue hiring while using AI to augment their work. We are building our own tools rather than relying entirely on the many vendors targeting commercial real estate. The goal is to help employees complete tasks faster without replacing the market knowledge and relationships that clients need.

Where is Oxford applying AI today?

We developed a universal interface through which agents can use specialized AI agents for individual tasks. For broker pricing opinions, AI can help pull comparable transactions, consolidate information, and organize the analysis. A strong BPO that once required three or four days may now take two or three hours. AI handles the repetitive work, and the broker applies judgment about value and marketing.

Other tools prepare pitch decks in minutes, review lease provisions, identify missing language, and create points for a client’s attorney to consider. We are not attorneys and cannot provide legal advice, but an AI-assisted review can reduce a five-hour task to about 30 minutes.

AI also consolidates market intelligence, including transactions, buildings at risk of foreclosure, and trends by asset class. Work that once required a research department can be assembled weekly or monthly and reviewed by a person before distribution. Across these uses, AI may complete 80% of a task while our team performs the critical 20% review.

Why do office clients sometimes expect deals the market cannot provide?

Headlines describe office as universally distressed, so clients expect extraordinary terms everywhere. Those deals exist, but not in every building or submarket. A tenant willing to remain downtown, move to Greenspoint, or choose an older building with limited amenities may secure an aggressive deal.

Many clients, however, want suburban locations or new amenity-rich buildings. About half of my office clients want the Memorial area, where strong fundamentals leave little room for dramatic concessions. In one current Memorial-area transaction, the offer may be only 50 cents off rent, two or three free months, and a $15 tenant improvement allowance on a five-year lease. A Westchase transaction, by contrast, may produce a net effective rate around $4.50 or $5 per square foot. Location determines leverage.

What is creating friction in industrial transactions?

Industrial property values have risen sharply. Our database contains more than 1,300 sale and lease comparables from the past four years. A building that once averaged about $100 per square foot may now trade around $165. Buyers coming from an older property or a lease can struggle with that increase. Some sellers still expect top-dollar growth even as parts of the industrial market cool and buyers become less willing to pay those prices.

Availability also depends on the product. We can negotiate aggressively for big-box industrial users, but finding a 20,000-square-foot stand-alone shallow-bay manufacturing building can be extremely difficult.

Construction costs are another obstacle. In some cases, they are 30% to 70% higher than four years ago. Electrical requirements, light controls, outlet regulations, and material costs have increased, and landlords cannot always fund the necessary improvements. Lenders have also added underwriting and scrutiny since COVID. Financing takes longer, more transactions are rejected, and deals that were straightforward a few years ago have become harder to complete.