On October 23rd, 2014, we updated our
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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
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?????
Source: BLS, Grubb & Ellis 2008-09 2001 1981-82 Job Losses Related To Recessions 1990-91
Unemployment Rate Source: BLS, Grubb & Ellis Houston 8.5% Note: Houston’s unemployment is lower than the National average
Annual Job Gains / Lost, Houston Source: BLS, University of Houston Institute for Regional Forecasting
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
Net Absorption vs. Vacancy Rate
Office Vacancy Rates by Class Source: Grubb & Ellis
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%
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
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
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
Houston Sublease Space Available 4.66 MM Note: Good News – The sublease market is not growing
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
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 – $24 NNN Quoted Rental Rate 123,906 SF 192,771 SF 305,528 SF 350,000 SF Direct Space Available 39.5% 19.4% 0% 0% Leased Sep 2009 Mar 2009 Oct 2009 Year Built 210,968 SF 239,114 SF 305,528 SF 350,000 SF Square Feet Granite Towers Phase II Energy Crossing I Three Eldridge Place Eldridge Oaks – Phase I
Houston Office Investment Trends
Top 20 Office Investment Markets – Q1 2010 Source: Real Capital Analytics
Houston Tenants Can Expect:
Asking rents will hopefully bottom out late 2010 or early 2011.
Net absorption: Remain in moderate negative territory as businesses cut overhead and/or reduce their SF.
Very aggressive landlords: Don’t loose a tenant and roll out the red carpet for all good prospects.
Sublease Options: Will continue to compete with landlords.
Distressed Sales: Could have an impact on certain submarket rents. Lower investment basis could allow new owners to ask for even lower rents.
Really Good News:
Houston: Best office market in the U.S.
Houston: Getting very positive press nationally and internationally and attracting global investor interest.
Energy Prices: HIGH and getting HIGHER.
Energy Demand: Increasing. Does the U.S. have the “@?<#$*%$” 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.
Update on “Green” Buildings
Houston LEED Office Building Inventory Inventory Breakdown
Houston LEED Certified Office Space Trends Total # Projects Achieving Certification Per Year Total SF Achieving Certification per Year
LEED Certified Office Buildings by Submarket 8 Buildings 3 Buildings 6 Buildings 9 Buildings 1 Building
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
Houston’s Office Market First Quarter 2010 Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments