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  • JOB LOSSES RELATED TO POST-WAR RECESSIONS : This graph compares monthly job losses related to the 11 post-World War II recessions. The starting point for each downturn is not necessarily the month when the expansion cycle peaked (the start date of each recession) but the month when total employment peaked before turning downward. These two months are always close to one another but not necessarily synonymous. Bottom Line : Although job losses appear to have bottomed out, it will take a long time to regain the 8.4 million jobs lost in 2008 and 2009. The last three recessions – 1981-82, 1990-91 and 2001 – were followed by progressively longer recovery periods before employment returned to neutral. Measured from the beginning of the recession, the labor market required 28 months to recoup its losses after the 1981-82 recession. The convalescent periods from the 1990-91 and 2001 recessions lasted for 32 and 48 months, respectively. In the current cycle, total payroll employment did not hit bottom until December 2009, 24 months after the losses began, and it is unlikely to return to equilibrium for at least another three years. This recovery span understates the pain because the labor market needs to generate 100,000 to 125,000 net new jobs per month to accommodate the growing labor force, which is why the unemployment rate, currently 9.9 percent, will decline painfully slowly even as employers begin to hire again. Nevertheless, the 290,000 new jobs in April are a welcome change and suggest that the labor market is finally headed in the right direction. Next release date : 6/4/2010 For further information : U.S. Bureau of Labor Statistics, http://stats.bls.gov/
  • LABOR AVAILABILITY . The proportion of unemployed workers shows how well a nation's human resources are used and serves as an index of economic activity. The U.S. Bureau of Labor Statistics and designated state employment agencies conduct a survey of households to track the unemployment rate for the U.S., states and metropolitan areas. Because the household survey is used to track the unemployment rate while the establishment survey is used to track job creation, the results don ’ t always match up very well, particularly since the unemployment rate excludes people who have become discouraged and are no longer looking for work. Commercial Real Estate Impact . Low unemployment can exert a significant influence on industrial and office site locations and expansions as companies compete for a shrinking number of skilled workers. The result can lead to either the consolidation or decentralization of existing operations, relocation to areas of (relatively) higher unemployment or the adoption of labor saving technologies that can influence space needs. The effect of low unemployment and tight labor markets is particularly dramatic in retailing, telemarketing, light manufacturing and distribution-fulfillment operations that rely on mostly unskilled or semi-skilled workers, pay low wages, and have high rates of employee turnover. The explosion of demand for call centers has them scrambling to find metropolitan labor markets that offer the best hiring prospects. They are considering ever-smaller markets or moving offshore to locate facilities. At the other end of the scale, high-tech start-ups must congregate where they can tap into a pool of highly skilled employees, e.g. Silicon Valley, Boston, Northern Virginia, Seattle, Austin and Manhattan. Bottom Line : The unemployment rate rose 0.2 of a percentage point to 9.9%, but much of the rise reflected a spike in labor force participation, from 64.9% to 65.2%, a symptom of improving labor market conditions. Household employment rose by 550,000, the most in almost three years. Next release date : 6/4/2010 For more information : U.S. Bureau of Labor Statistics, http://stats.bls.gov/
  • JOB GROWTH is one of the most important indicators of economic health, and it underpins the demand for real estate. The U.S. Bureau of Labor Statistics is the federal agency responsible for tracking job growth. Each state has a designated agency that conducts a survey of establishments and sends the results to the BLS, which aggregates the data for the country. In 2003, Unfortunately, the employment categories tracked by state and federal government agencies, are not neatly tied to the various real estate product types. Beginning in 2003, these categories are based on the new NAICS codes (North American Industry Classification System), which replaced the old SIC codes (Standard Industrial Classification). Job growth is a lagging economic indicator, meaning that it is one of the last indicators to be affected when the economy accelerates or decelerates. Commercial Real Estate Impact : Although job growth is a lagging economic indicator, it is a leading indicator of office leasing activity. The demand for industrial space depends on the ability of manufacturers and distributors to improve their bottom lines by investing in new plant, equipment and technology while holding employment steady or even reducing payrolls. The demand for retail space depends on retail sales; if people are not employed, they won’t spend. The demand for apartments depends on household formation, particularly households headed by people in their 20s and early 30s. Job growth plays a critical role in the timing of household formations. Younger renters are likely to take a roommate or move home with mom and dad if their job prospects appear shaky. Bottom Line : The labor market had its best month in three years in April. The headline increase in nonfarm employment, 290,000, was above expectations, but revisions to past months and a surge in private employment were the most convincing evidence since the recovery began that firms are adding resources to meet strong demand growth. Next release date : 6/4/2010 For more information : U.S. Bureau of Labor Statistics, http://stats.bls.gov/
  • The office vacancy rate ended the quarter at 15.6 percent, an increase of 80 basis points since last year’s fourth quarter and 260 bps since vacancy bottomed at 13.0 percent in the fourth quarter of 2007. It was the largest quarterly increase of this cycle, meaning that the pace of softening accelerated in the first quarter. Manhattan, Long Island and New York’s Outer Boroughs remain the only three major U.S. markets to post sub-10 percent vacancy rates, although Manhattan’s vacancy rate, like the U.S. average, has risen for five consecutive quarters. Eight markets posted vacancy rates above 20 percent, led by Phoenix, where vacancy is approaching 25 percent.

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  • 1. Houston’s Office Market First Quarter 2010 Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments
  • 2.
    • Job Growth: A little locally but none nationally. Worse in other cities/states/countries
    • Houston Recovery: Tied to the Texas recovery which is tied to the U.S. recovery which is tied to the Global economy – we seem to be getting better but the U.S. and Global economies are reportedly getting worse
    • Credit Markets: Not fully recovered
    • Continental Airlines Merger: Merger with United will be bad for the CBD and other submarkets
    Really Bad Things Effecting the Office Market
  • 3. Really Bad News Effecting The Office Market
    • EXXON: Consolidation and relocation will hurt the Greenspoint submarket
    • NASA: Apparently no longer a friend of Washington. Crucial to the Clear Lake area and surrounding submarkets
    • Oil Prices: $80 per barrel is supposed to be really good news for Houston – right? Why no need for more office space?
    • BP Oil Spill: HUGE but TBD
    • Patient Protection and Affordable Care Act – dba: Healthcare Reform – Tax Increases?????
  • 4. Source: BLS, Grubb & Ellis 2008-09 2001 1981-82 Job Losses Related To Recessions 1990-91
  • 5. Unemployment Rate Source: BLS, Grubb & Ellis Houston 8.5% Note: Houston’s unemployment is lower than the National average
  • 6. Annual Job Gains / Lost, Houston Source: BLS, University of Houston Institute for Regional Forecasting
  • 7. Houston Office Statistics Source: Grubb & Ellis First Quarter 2010 Class Total SF Vacant SF Vacant % 1Q 2010 Net Absorption Average Asking Rent A 84,305,024 12,844,640 15.2% (928,539) Chevron-Fluor-ABB $29.65 B 66.979,757 12,545,919 18.7% 84,509 $19.85 C 17,308,844 2,920,856 16.9% 114,397 $15.33 Total 168,593,625 28,311415 16.8% (729,633) $23.53
  • 8. Net Absorption vs. Vacancy Rate
  • 9. Office Vacancy Rates by Class Source: Grubb & Ellis
  • 10. Performance by Top Office Building Owners Owner RBA Direct Available Direct Vacancy Annual % Change Hines 8,778,075 1,823,224 11.0% +0.8% Brookfield 8,465,430 958,491 6.0% -0.9% Behringer Harvard 3,862,073 655,271 15.1% +7.4% Thomas Properties Group 3,823,021 836,173 10.9% +1.8%
  • 11. Source: Grubb & Ellis Office Vacancy Rates by Submarket 2010-Q1 Winners & Losers
  • 12. Average Citywide Asking Rents Average $/SF/Year Full Service Gross $29.65 * As of 1 st Quarter 2010 Note: Class A rates are $10/SF or 50% higher than Class B rates. There does not seem to be a noticeable flight to quality. $19.85 $15.66
  • 13. Office Asking Rents – Class A Average Class A $/SF/Year Full Service Gross * As of 1 st Quarter 2010 $36.54 $27.96 Note: Average overall $29.65
  • 14. Office Asking Rents – Class B Average Class B $/SF/Year Full Service Gross * As of 1 st Quarter 2010 $25.85 $18.86 Note: Average overall $19.85
  • 15. Houston Sublease Space Available 4.66 MM Note: Good News – The sublease market is not growing
  • 16.
    • Nearly 8.4 million SF (59 Buildings) of new construction has delivered since 2008
    • Leasing activity within these new projects have been steady but cumulative vacancy is 50.7 percent vacant
    • Only 1.8 million square feet of speculative construction underway i.e. MainPlace (10% leased), EcoCentre at Lake Pointe (under construction).
    • Numerous potential troubled assets that have been recently delivered with vacancy exceeding 50%
    Houston Office Construction Statistics
  • 17. Large Blocks of Space in New Projects Trophies or Train Wrecks Sep 2009 Simmons Vedder Partners Simmons Vedder Partners $22.50 NNN 168,621 SF 38.1% Aug 2009 272,361 SF Westchase Park Bldg 1 Granite Properties Stream Realty Partners CB Richard Ellis Transwestern Leasing Company Granite Properties Opus West Behringer Harvard Transwestern Owner $19.50 NNN Negotiable $22.50 NNN $22 – $24 NNN Quoted Rental Rate 123,906 SF 192,771 SF 305,528 SF 350,000 SF Direct Space Available 39.5% 19.4% 0% 0% Leased Sep 2009 Mar 2009 Oct 2009 Year Built 210,968 SF 239,114 SF 305,528 SF 350,000 SF Square Feet Granite Towers Phase II Energy Crossing I Three Eldridge Place Eldridge Oaks – Phase I
  • 18. Houston Office Investment Trends
  • 19. Top 20 Office Investment Markets – Q1 2010 Source: Real Capital Analytics
  • 20. Houston Tenants Can Expect:
    • Asking rents will hopefully bottom out late 2010 or early 2011.
    • Net absorption: Remain in moderate negative territory as businesses cut overhead and/or reduce their SF.
    • Very aggressive landlords: Don’t loose a tenant and roll out the red carpet for all good prospects.
    • Sublease Options: Will continue to compete with landlords.
    • Distressed Sales: Could have an impact on certain submarket rents. Lower investment basis could allow new owners to ask for even lower rents.
  • 21. Really Good News:
    • Houston: Best office market in the U.S.
    • Houston: Getting very positive press nationally and internationally and attracting global investor interest.
    • Energy Prices: HIGH and getting HIGHER.
    • Energy Demand: Increasing. Does the U.S. have the “@?<#$*%$” to meet the demand (offshore drilling?)
    • U-Haul: Houston #1 out of 50 cities for one-way destination rentals.
    • Labor Availability: Houston and Texas provide strong labor pools (and labor for your pools), strong infrastructure, low costs of living and a business friendly local and state government.
  • 22. Update on “Green” Buildings
  • 23. Houston LEED Office Building Inventory Inventory Breakdown
  • 24. Houston LEED Certified Office Space Trends Total # Projects Achieving Certification Per Year Total SF Achieving Certification per Year
  • 25. LEED Certified Office Buildings by Submarket 8 Buildings 3 Buildings 6 Buildings 9 Buildings 1 Building
  • 26. Chase Tower 1,683,893 SF LEED, Gold CBD Williams Tower 1,476,973 SF LEED, Gold Uptown/Galleria First City Tower 1,333,312 SF LEED, Gold CBD One & Two Shell 1,792,214 SF LEED, Gold CBD 919 Milam 542,919 SF LEED, Silver CBD Houston LEED Certified Office Buildings
  • 27. Houston’s Office Market First Quarter 2010 Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments