Houston office market review mid year 2010

Houston Office Market Update
Mid-Year, 2010
Prepared by:
Coy Davidson
Senior Vice President
Colliers International
www.colliers.com
Accelerating success.

Table of Contents
Houston Office Market Update: Mid-Year 2010
Market Highlights
Absorption, Supply & Vacancy
Rental Rates
Net Absorption
Vacancy
Market Summary
Submarket Profiles
Development Pipeline
Key Events
Economic Data

Market Highlights
Houston Office Market
Houston continues to be recognized as one of the strongest major metropolitan areas in the U.S. for business activity, with the employment sector reporting marked improvement from this time last year.
Despite clear signs of economic recovery, the Houston office sector posted anemic market indicators at mid-year including negative absorption, rising vacancy rates and decreasing rental rates for all classes of office space.
The Houston office market posted negative absorption of 316,519 square feet in the second quarter cancelling out first quarter 2010 gains and bringing the year –to-date total to negative 116,498 square feet.
Since the first quarter of 2009, the Houston office market has recorded 1,397,349 square feet of negative absorption. However, give a total office market of over 195 million square feet, the incremental downward cycle in the Houston office market has been much less severe than many other major office markets throughout the United States.
On a year-over-year basis CBD Class A quoted rents fell 7.5% to $35.86/SF (from $38.78/SF) while suburban Class A rental rates fell a modest 0.9% to $27.35/SF (from $27.59/SF).
Houston office occupancy continued falling at mid-year with the city-wide average for all property classes at 83.5% in the second quarter, compared to 84.9% in the second quarter last year.
Leasing activity was 2.5 million square feet in the second quarter of 2010 , compared to 3.3 million square feet in the quarter last year.

Absorption, New Supply & Vacancy
Houston Office Market

Rental Rates
Class A Rental Rates
Weighted Average Quoted Annual Rate

Rental Rates
Class B Rental Rates

Rental Rates
Class A Rental Rates by Submarket

Rental Rates
Class B Rental Rates by Submarket

Net Absorption

Vacancy

Historical Vacancy Rate
Citywide Vacancy Rate (All Classes)

Vacancy by Class
Citywide Vacancy by Building Class (Square Feet)

Central Business District: Class A

Suburban: Class A

Market Summary: CBD | Suburban | Citywide

Submarket Profiles
16

Market Snapshot
Central Business District
Weighted Average Quoted Gross Rate
Vacancy by Class (Square Feet)

Submarket Profile
Galleria / West Loop

Submarket Profile
Greenway

Submarket Profile
Neartown / Allen Parkway

Submarket Profile
San Felipe / Voss

Submarket Profile
Katy Freeway (Energy Corridor)

Submarket Profile
Westchase

Submarket Profile
Southwest

Submarket Profile
Sugar Land / East Fort Bend County

Submarket Profile
Northwest

Submarket Profile
Greenspoint / North Belt

Submarket Profile
FM 1960

Submarket Profile
The Woodlands

Submarket Profile
South Main / Medical Center

Submarket Profile
Gulf Freeway / Pasadena

Submarket Profile
NASA / Clear Lake

Submarket Profile
Kingwood / Humble

Development Pipeline

Select Under Construction Office Buildings
Main Place
Eco Centre at Lake Pointe
Hess Tower

Key Events
The impact of the BP oil spill on the Houston economy and office market may not be know for some time. The moratorium on offshore drilling in response to the BP rig explosion has impacted 18 firms active with deepwater rigs in the Gulf and 16 of those firms have a significant presence in Houston. The consensus opinion is that when drilling resumes, the industry will operate under stricter regulations, new economics and closer federal government oversight. How the political ramifications may impact investment in offshore drilling in the Gulf of Mexico and the employment base in Houston remains to be seen.
Last February, the Obama Administration unveiled a controversial new plan for human space exploration, which had business leaders in Houston and property owners in the Clear Lake area deeply concerned. The potential for job losses at Johnson Space Center and among the NASA contractors was projected to be as much as 5,000 jobs, if the Obama plan was adopted. While a new NASA vision and budget has yet to be finalized it appears congressional opponents to the Obama plan have scored a significant victory. Recently, both the House and Senate have approved separate bills that would keep intact funding and the majority of the employment base related to NASA’s Johnson Space Center.
The merger of Continental Airlines and the United Airlines that is expected to close at year end and the consolidation of the combined airline’s corporate headquarters in Chicago will result in some job losses for Houston. The loss of a major corporate headquarters, where Continental Airlines leases over 600,000 square feet in the CBD, will have some impact on the downtown office market, depending on how many jobs are shifted to Chicago and how much space Continental elects to put on the market, likely via sublease.

Economic Highlights
In the twelve-months ending in May 2010, Houston’s job losses totaled 22,000 significantly below the 100,000 jobs lost in 2009.
The unemployment rate for Houston in May was 8.3% down a half percentage point from the beginning of the year.
Private sector employment in Houston grew by 10,800 jobs in May 2010 and is up 31,000 jobs since January 2010.

Contact Me
For more information contact:
Coy Davidson
Senior Vice President
Office Services Group
Direct: 713.830.2128
coy.davidson@colliers.com
www.colliers.com

Accelerating success.
COLLIERS INTERNATIONAL
1300 Post Oak Boulevard, Suite 200
Houston, Texas 77056
www.colliers.com

Houston office market review mid year 2010

by Coy Davidson on Aug 31, 2010

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Houston office market review mid year 2010 — Presentation Transcript