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Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
Tenant advisor newsletter 10 2010
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Tenant advisor newsletter 10 2010

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  • 1. The Tenant Advisor OCT / NOV 2010 Inside this issue: Office Space Density: The New Workspace Metric The CRE Market Cycle A Long Road Back for the Office Market So What Cities are Creating Jobs? Plus: Houston Office Market Report 3Q 2010 View the Tenant Advisor on the Web www.coydavidson.com
  • 2. Contents Office Space Density: The New Workspace Metric Doing More with Less The CRE Market Cycle Understanding Market Cycles in Commercial Real Estate A Long Road Back for the Office Market The Recession may be over, but Recovery in the Office Market could take awhile So What Cities are Creating Jobs? Which Cities are Leading the Recovery in Job Creation Houston Office Market Report 3Q 2010 Houston Suburban Office Market Continues to Outpace CBD All articles contained herein are the opinion of the author and not those of either Colliers Appelt Womack Inc. or Colliers International (collectively, "Colliers"). Colliers neither endorses, sponsors nor necessary shares the opinions of the author, regardless of whether any article is posted by any employee, officer, agent, or representative of Colliers. Colliers has not authorized or verified any statement of fact made in a article, and any such statement does not constitute a statement of fact by Colliers. Colliers is not responsible for the monitoring or filtering of this newsletter, nor does Colliers claim ownership or control over any the newsletter content
  • 3. The 4th Quarter is here and the end is rapidly approaching to a year which has still been challenging with an economy that is improving, but struggling to gain steam both locally in Houston, as well as Nationally Coy Davidson As companies wrestle with the new economy, many are taking a closer look at Senior Vice President their real estate as a means to not only control costs but also to increase Office Services Group Direct: 713.830.2128 productivity. Understanding where we are in the real estate market cycle and the coy.davidson@colliers.com projected duration of the current market phase will play an important role in www.coy.davidson.com developing an effective real estate strategy for your workplace going forward. The current economic climate offers tremendous opportunities for office tenants to secure attractive leasing terms and minimize occupancy costs for several years to come. Texas is leading the way in new job creation, and in Houston, where the recession’s impact was not as severe, the current state of office market fundamentals would suggest the window of opportunity for office tenants could close sooner than many parts of the country. I am pleased to provide you with current issue of the of my newsletter, which is tailored to the corporate office space user and addresses these topics. You can view all these articles and other related topics on my blog “The Tenant Advisor” at www.coydavidson.com. I hope you find the content informative. About Me: I assist corporate users and businesses with their office space and facility requirements, identifying optimal, cost effective locations, structuring transactions and corporate real estate strategy that compliments their business objectives. I have over twenty years experience in commercial real estate experience specializing in corporate real estate services, tenant representation and office leasing. I practice in the Houston office of Colliers International, a global real estate services firm and industry leader with 480 offices worldwide. My background includes assisting a wide variety of corporate office and industrial space users with a focus on the Houston and Austin office markets. I have served clients in additional U.S markets including, Dallas, San Antonio, Seattle, Phoenix, St. Louis, Cleveland, Denver and Miami.
  • 4. The Tenant Advisor O ff i c e S p a c e D e n s i t y : T h e N e w Wo r k s p a c e M e t r i c Step one to improving Measuring office density square footage from the space utilization is typically helps to identify a 285,000 square feet the to eliminate surplus space benchmark for office firm currently occupies. through subleasing, lease efficiency in addition to There is no one size fits all terminations, consolidating assist with monitoring new when it comes to office locations and selling non- office use techniques. space. How a company productive real estate Workplace Trends utilizes office space is assets. Historically driven by the activities of occupancy costs have been The general trend of the the organization. For benchmarked in terms of open plan workplace, e xa m p l e , Law firms three primary metrics: where managers give up typically have a higher ratio their private offices and join After a company has gone of private offices than other their employees in a more through the disposition of industries. In Houston, the open office environment is surplus space process and energy capital of the world, becoming more aligned these metrics to acceptable levels based on their new employee count, what is next? “The general trend of Improving Space Utilization the open office plan where managers give Numerous industry studies up their private offices have shown that the aver- and join their age maximum utilization employees in a more rate throughout the day for open office most office space is just 48 environment is percent. A great deal has becoming more been written lately about commonplace.” the design of workspace and how companies are looking to do more with less we saw many companies in commonplace. Open plan office space. While this the oil gas sector take the environments have grown trend in some industries open office space approach in adoption partly due to the began prior to the latest and while some have perceived cost saving, economic downturn, the retained that strategy, oth- increased flexibility and the recession has caused ers have trended back to a premise this strategy companies to take a more more traditional office enhances team aggressive posture towards layout with private offices collaboration, productivity office space density. for senior managers. I and communication. would note for energy Office density: is defined as Big Four professional companies, real estate the space (per square foot) services firm Deloitte occupancy costs as a per workstation. Office is starting the build-out of percentage of revenues is density excludes its new 166,000-square- much lower than most accounting for support foot San Francisco head- industries. spaces and is calculated on quarters and expects to a net rentable basis. A Whatever strategy a expand the 1,500 person higher office density means company takes in regards San Francisco office by 10 a lower space per work- to its office space design, percent in the next year, station and a lower density calculating "office density" the new office will represent means more space per is the workspace metric a 42 percent decline in workstation. that is now in vogue.
  • 5. The Tenant Advisor The CRE Market Cycle There is quite a bit of Recovery Phase: The So Where is the Office discussion lately regarding phase following the market Sector in the Market Cycle? where commercial real bottom, characterized by Historically the office estate is in the market cycle tightening market market lags any shifts in and the fact that the most conditions and a shift in the general economy by 2- recent recession has been supply/demand balance 3 quarters. So while a officially declared as having leading to reduced vacancy modest recovery may very ended in in July of 09. rates, more balanced rental well have begun, it has yet However, at this point the growth, and a stabilization to appear in the office labor market has yet to of overall cap rates. employment numbers in any significant way. Employment performance “ Historically the office is mixed among major market lags any shifts in the office markets and as a generally economy by 2-3 result some have quarters. So while a modest performed better than recovery may very well others over the last year. In have begun, it has yet to some markets rents and appear in the office vacancies are bottoming employment numbers in a out while in others rents are significant way” Expansion Phase: The show any significant still falling with vacancies phase following recovery, improvement. As a result of rates still creeping upward. characterized by strong facing the prospect of a We will be seeing the 3rd demand and increasingly jobless recovery for some quarter market reports tight market conditions time, the road back for the soon, but I think it is an leading to low vacancy office market could be long. accurate statement to say rates, robust rental growth that office markets around A Look at the Market Cycle and decreasing overall cap the country are either still in rates. Recession Phase: The the recession phase or in phase following contraction, Contraction Phase: The the early stages of characterized by very low phase following the market recovery. In either case demand and high levels of peak, characterized by given the employment supply that were added softening market conditions outlook, the expansion during the previous two and a shift in the phase does not appear to phases. Typically involves supply/demand balancing be on the horizon anytime high vacancies, negative leading to increasing soon. rental growth and high vacancy rates, slowing overall cap rates. rental growth and rising overall cap rates. The Houston Office Market
  • 6. The Tenant Advisor A L o n g R o a d B a c k f o r t h e O ff i c e M a r k e t The Recession is Officially rate of just 1.6 percent in the employment does not appear Declared Over second quarter of this year, to be on the horizon as hope and many believe growth will for a sharp recovery The National Bureau of not be much better in the diminishes. Many forecasters Economic Research, an third quarter. are predicting 9 plus percent independent group of unemployment even through economists, released a A white paper released the next presidential election. statement in September recently from the Federal Further complicating matters saying economic data now Reserve Bank of San is corporations are reluctant clearly point to the economy Francisco, suggests strong to hire with so much turning higher last summer. U.S. productivity rates are uncertainty in the economy That makes the 18-month likely to continue well into the despite the fact they are recession that started in future, creating another recording strong profits and December 2007 the longest h ur dl e f or s ig n if ic an t sitting on large piles of cash and deepest downturn for the improvement in the labor reserves. There is also a U.S. economy since the market. growing trend of companies Great Depression. increasingly looking for ways to do more with less in regards to their office space and facilities in order to remain competitive. “A significant improvement to market fundamentals for What about the Houston the U.S. office sector is Office Market? entirely dependent on a Despite some well substantial and sustained documented issues exclusive upturn in office of the National Economy, the employment. The good Houston office market is in a news for office property better position for a quicker owners is once growth in recovery to pre-recession office employment begins, market fundamentals than these gains will not be A jobless recovery does not The Good and Bad News for many major markets around offset by any increase in bode well for the office the Office Sector the country. Propped up by supply to the office market the Energy Industry, Houston inventory.” A significant improvement to has only experienced Despite the end of the market fundamentals for the approximately 1.4 million economic downturn, nonfarm U.S. office sector is entirely square feet of negative office payrolls are still down dependent on a substantial space absorption since the 329,000 from their level at and sustained upturn in office beginning of 2009 when the the recession’s official end employment. The good news market began to feel the 15 months ago, and the slow for office property owners is downturn. growth in recent months that once growth in office means that the unemployed employment begins to The impact of the recession still have a long road ahead. sustain itself, these gains will has certainly made its mark The recession was not only not be offset by any increase on the Houston office market, long but also deep as only in supply to the office but the damage just hasn't 9% of the jobs lost during the inventory. There has been been as severe as compared recession have come back. very little new office inventory to other cities. So in effect come out of the ground since Houston should have a Many economists estimate the downturn began back in shorter road back, but just that output needs to grow December of 2007. like the rest of the country we over the long run by about are dependent on sustained 2.5 percent to keep the The bad news for office growth in office employment unemployment rate, now at building owners is that before that full recovery can 9.6 percent, constant. The substantial and sustained occur. economy grew at an annual increase in office
  • 7. The Tenant Advisor So What Cities are Creating Jobs? By: Ross Moore, Chief Economist, Colliers International USA. Despite all the gloom and doom surrounding the jobs market, a few cities around the country are now showing positive year-over-year growth. While this group is fairly small, it is growing every month as the economy expands (albeit slowly) and “The top three cities employers feel the need to for job growth for the add to their payrolls. year ending August September 2010 data from 2010 were Austin, the Bureau of Labor Boston and Dallas/ Statistics shows on a year- Fort Worth” over-year basis employment was up 0.3%. A limited While Houston has number of cities are now yet to record positive showing a modest gain in job growth on a year- jobs on an annual basis, over-year basis, however, many are still either many have projected showing losses or no change it will before year-end. relative to a year ago. So Who is Leading the Country? The top three cities for job growth for the year ending August 2010 (metro level data lagged by one month) were Austin, TX (2.5 percent), Boston, MA (1.5 percent) and Dallas/Ft. shows Boston, MA led the the national level, although if Worth, TX (1.0 percent). This nation with 36,600 new jobs losses in the public sector top three list is probably not a created in the past 12 are ignored the opposite is surprise to many particularly months followed by Dallas, true. Indeed, private sector the two Texas cities but TX (28,700), Washington, employment has no w Boston might be an eye- DC (20,500), Austin, TX increased month-over-month opener to some. Boston, (18,700), and St. Louis, MO for the past nine months. however, has benefited from (7,500). While a major surge in a diverse economic base and nationwide jobs is highly an economy based on knowl- No Surge Coming unlikely in the short term, the edge and learning. At the While it is encouraging to see data suggests that moderate other end of the spectrum some cities posting year-over growth is occurring. with notable metropolitan -year gains in jobs, for the Hopefully a more robust areas job losses over the last vast majority of metropolitan recovery will prevail and year include; Reno, areas employment gains are shortly lead to more cities in Sacramento, Fresno, San still a long way off. The past the plus column than in the Francisco-Oakland-Fremont several months have been negative column. and Las Vegas. In absolute marked by a loss of jobs at terms, the August jobs report
  • 8. Q3 2010 | OFFICE MARKET HOUSTON OFFICE MARKET RESEARCH & FORECAST REPORT Houston Suburban Office Market Continues to Outpace CBD Houston’s office market at the close of 3Q2010 showed a slight improvement from the previous quarter, with a stronger performing suburban sector, compared to the Central Business District (CBD). Although leasing activity picked up, vacancy increased slightly. Year-over-year change in office occupancy citywide was moderate with 83.3 percent occupancy at the end of the third quarter compared to 83.8 percent in the same quarter last year. Quoted rental rates citywide for Class A space MARKET INDICATORS decreased 0.4 percent, with the CBD Class A decreasing 2.0 percent to $35.16 per square foot, while Q3-09 Q3-10 suburban Class A space decreased a minimal 0.2 percent to $27.30 per square foot. Net absorption NET ABSORPTION (SF) also showed the combined suburban markets outperforming the CBD. While the CBD’s year-to-date net 6k (26k) absorption was negative 553,516 square feet, the suburban markets’ combined net absorption was positive at 242,261 square feet. Even with weak pockets scattered citywide, the suburban market CITYWIDE AVERAGE VACANCY trends continue to indicate this sector will plateau sooner, and will likely lead the office market 16.2% 16.6% recovery. CITYWIDE AVERAGE RENTAL RATE Looking forward, several key events are contributing to a more cautious outlook for the local downtown $22.82 $23.11 office market over the next 6–12 months. The recently approved merger between Houston-based CLASS A RENTAL RATE Continental Airlines and Chicago-based United Airlines expected to close by year-end will not CBD $37.45 $35.16 negatively impact CBD Class A occupancy in the near-term. According to a source close to the deal, Continental’s lease doesn’t expire until 2014 and the space will not be offered for sublease for 12-24 SUBURBAN $26.84 $27.30 months. The top concern for the CBD Class A market is the completion of speculative new CLASS A VACANCY construction. Hines’ 972,474-square-foot MainPlace is currently 10 percent leased and expected to be CBD 8.8% 10.1% completed by February 2011. Securing an anchor tenant before final delivery, however, remains a SUBURBAN 18.4% 19.3% possibility as was the case with the only other new office building underway downtown—Trammell Crow Company’s 844,763-square-foot Hess Tower—100 percent pre-leased to Hess Corporation and scheduled to open in October 2010. UNEMPLOYMENT 08/09 08/10 According to the Texas Labor Market Review, Texas MSA’s have experienced job gains in six out of HOUSTON 8.2% 8.7% eight months so far this year. Although Houston isn’t the top performing MSA in Texas, Houston TEXAS 8.0% 8.3% continues to be recognized as one of the strongest metros in the U.S. for business activity, with the U.S. 9.7% 9.6% employment sector reporting marked improvement from this time last year. In the 12 months ending in # August 2010, Houston’s job loss totaled 18,300, significantly below the 100,000 jobs lost in 2009, with JOB GROWTH % the local MSA projected to end 2010 with positive job growth. The area’s above-average population HOUSTON -0.04% (0.9k) growth spurring the need for increased services is also a positive contributing factor in Houston’s TEXAS 1.3% 129k strong long-term outlook. U.S. -0.1% (183k) ABSORPTION, NEW SUPPLY & VACANCY RATES 2,500,000 17% 2,000,000 15% 1,500,000 13% Absorption 1,000,000 500,000 11% New Supply 0 9% -500,000 7% Vacancy -1,000,000 5% www.colliers.com/houston
  • 9. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET OCCUPANCY & AVAILABILITY ABSORPTION & DEMAND CBD VS. SUBURBAN With the exception of suburban Class B properties, Houston recorded negative net absorption of CLASS A OFFICE VACANCY occupancy levels citywide have decreased at a 25,586 square feet in the third quarter, compared slow pace over the past year. Houston’s office to 248,351 square feet negative net absorption at 20.0% occupancy for all property classes averaged 83.3 the same time last year. City-wide year-to-date 18.0% 16.0% percent in the second quarter, compared to 83.8 net absorption is negative 311,225 square feet 14.0% percent this time last year. Despite the incremental with CBD Class A product contributing most of 12.0% decreases, however, the ongoing softness in the that with year-to-date negative net absorption of 10.0% employment sector is not likely to reverse current 435,872 square feet, followed by CBD Class B 8.0% occupancy trends in the near future. with negative net absorption at 131,085 square 6.0% In the CBD, top-tier properties’ resilience waned feet. In contrast, suburban Class A and B have 4.0% between quarters, inching up into double-digit managed to maintain modest positive net vacancy, with Class A occupancy at 89.9 percent, absorption year-to-date with 72,499 and 101,149 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 compared to 91.2 percent one year ago. In sharp square feet, respectively. CBD VACANCY SUBURBAN VACANCY contrast, the CBD Class B posted 76.9 percent Prevailing economic uncertainty is likely to occupancy, down from 78.3 percent 12 months continue negatively impacting overall absorption earlier. levels through the end of 2010. While the overall suburban occupancy rate RENTAL RATES CLASS A OFFICE RENTS remained relatively flat between quarters, double- $40.00 After declining during the first two quarters of digit vacancy continued for all suburban property $38.00 2010, rental rates for all property classes classes at midyear. Suburban Class A occupancy $36.00 remained relatively flat between quarters. fell to 80.7 percent at the end of the third quarter $34.00 from 87.4 percent last year. By comparison, On a year-over-year basis, CBD Class A average $32.00 suburban Class B occupancy rose a modest 0.1 quoted rental rates actually fell by 6.1 percent to $30.00 percent to 83.5 during the same period. $35.16 per square foot (from $37.45), while $28.00 suburban Class A rates increased 1.7 percent to Citywide, a total of 56 office properties had $26.00 $27.30 per square foot. CBD Class B rates 100,000 square feet or more available for lease in posted a 1.8 percent increase to $23.87 per Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 both direct and sublease space—16 of those square foot (from $23.46), while suburban Class properties have over 200,000 square feet B rates fell 0.4 percent to $17.88 per square foot CBD RENTS SUBURBAN RENTS available—at the end of the third quarter. Sublease on a full-service basis. While supply continues to space totaled 3.8 million square feet, including 2 outpace demand, the current office tenants’ million square feet of vacant space and 1.8 million market is expected to continue through the end of square feet of subleases available for occupancy the year. over the next 12 months. The largest sublease space being marketed is Devon Energy’s space, 281,755 square feet in Two Allen Center and 186,462 square feet in Three Allen Center (available for occupancy 4/2011) in the CBD. In Westchase, 2103 CityWestPlace has the largest suburban sublease space available, 128,770 square feet. QUOTED GROSS RENTAL RATES FOR TOP PERFORMING OFFICE BUILDINGS BUILDING NAME ADDRESS SUBMARKET RBA (SF) YEAR BUILT LEASED AVAIL. SF RENT ($/SF) OWNER Wells Fargo Plaza 1000 Louisiana CBD 1,721,242 1983 94.6% 157,326 $40.96 Metropolitan Life Insurance Co. Heritage Plaza 1111 Bagby CBD 1,149,635 1986 90.4% 110,365 $40.53 Goddard Investment Group 1100 Louisiana 1100 Louisiana CBD 1,265,332 1980 99.7% 17,605 $39.74 Enterprise Products Partners One Eldridge Place 777 N. Eldridge Pkwy. Energy Corridor 239,417 1985/2001 91.4% 20,590 $29.50 Behringer Harvard Offices at Park 10 16290 Katy Freeway Energy Corridor 157,000 2006 97.8% 3,428 $29.00 Franklin Street Properties Minute Maid Building 2150 Town Square Place E. Fort Bend 185,000 2008 78.3% 40,145 $28.50 Planned Community Developers Wells Fargo Tower 1300 Post Oak Blvd. Galleria 491,254 1983 93.6% 31,440 $33.00 TIAA-CREF Five Post Oak Park 4400 Post Oak Pkwy. Galleria 567,396 1982 95.1% 27,802 $32.83 Shorenstein Company Marathon Oil Tower 5555 San Felipe Galleria 1,178,750 1983 92.9% 83,616 $28.71 Hanover Real Estate Partners 11 Greenway Plaza 11 Greenway Greenway 745,956 1978 91.1% 66,390 $29.15 Crescent Real Estate Equities One BriarLake Plaza 2000 W. Sam Houston Westchase 502,410 2000 95.8% 21,101 $39.73 Behringer Harvard Waterway Square 4 Waterway Ave. Woodlands 232,364 2009 45.6% 126,406 $36.73 The Woodlands Development Co. COLLIERS INTERNATIONAL | P. 2
  • 10. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET SALES ACTIVITY Significant new office leases (non-renewal) signed in the third quarter Investment sales activity in the third quarter remained at a slow pace with include: a handful of suburban properties changing hands. Year-to-date through the Weatherford International leased 335,000 Sq. Ft. at 2000 St. James third quarter, office transactions totaled 29 with a total dollar volume of Place, relocating from 515 Post Oak, both located in the Galleria $948 million, averaging $205 per square foot with an 8.4 percent submarket. Aker Solutions leased 133,417 Sq. Ft. at 3010 Briarpark, capitalization rate. relocating from 3600 Briarpark, both located in the Westchase Among the most significant transactions closed in the third quarter are: submarket. American National Insurance acquired the 153,345-square-foot Three The largest office lease renewal signed in the third quarter was Sugar Creek from Harry M. Green Interests for $28.5 million ($186 per Mustang Engineering’s early renewal of 248,872 square feet in Ten square foot). Located in the E Ft Bend/Sugar Land submarket, the building West Corporate Center II located in the Katy Freeway submarket. was completed in 2007, and at the time of sale was 45 percent leased to Shell Oil Company signed the largest sublease during the quarter, Aetna. 300,000 Sq. Ft. in 1000 Main located in the CBD submarket. Healthcare Trust of America acquired a 176,000-square-foot medical office building located at 7900 Fannin in the Medical Center from Stonehenge Development for $45.5 million ($257 per square foot). Lincoln Property Co acquired Energy Crossing from M&I Bank. The six- story building located on I-10 at Hwy 6 was purchased with the adjacent 5.5 acres of land that is designed for additional office space as well as a 1.2 acre retail parcel. The sales price was not disclosed. LEASING ACTIVITY Houston’s office leasing activity reached 3.2 million square feet in the third quarter, compared to 3.9 million square feet in the same quarter last year. Although still below levels before the recession, an increasing number of office tenants are renewing lease commitments with better concession packages or relocating to buildings/submarkets offering more attractive terms. SIGNIFICANT SALES TRANSACTIONS CLOSED IN THE Q3 2010 YEAR SALE BUILDING NAME SUBMARKET RBA (SF) BUYER SELLER $/SF CLOSED BUILT PRICE 7900 Fannin St. Medical Center 176,000 2004 Healthcare Trust of America Stonehenge Development $45.4M $257 06/2010 Three Sugar Creek Ft Bend/Sugar Land 153,345 2007 American National Insurance Harry M. Green Interests $28.5M $186 07/2010 5050 Westheimer Galleria/Uptown 162,909 1965 Black Forest Ventures LLC Stanford Financial Group $12.2M $172 07/2010 2010 TOP OFFICE LEASES (YTD) BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE KBR Tower CBD 883,487 KBR* 02/2010 2000 St. James Place West Loop/Galleria 335,000 Weatherford International 09/2010 1000 Main CBD 300,000 Shell Oil Co. 09/2010 Cullen Center CBD 291,536 KBR** 02/2010 Ten West Corporate Center II Katy Freeway 248,872 Mustang Engineering** 09/2010 Once Commerce Green Greenspoint 205,000 Nabors Corporate Services, Inc.** 08/2010 Galleria Tower II West Loop/Galleria 193,000 Southern Union 09/2010 Two Eldridge Place Katy Freeway 190,000 McDermott** 09/2010 Pinnacle Westchase Westchase 133,417 Aker Solutions 08/2010 Post Oak Central III West Loop/Galleria 130,846 SUEZ Energy** 05/2010 Wells Fargo Plaza CBD 122,896 U.S. General Services Administration 04/2010 5150 Westway Park Blvd. Northwest 92,420 CyrusOne 03/2010 Two Westlake Park Katy Freeway 92,000 BP** 09/2010 Williams Tower West Loop/Galleria 78,841 Rowan Cos.** 08/2010 Park Towers West Loop/Galleria 75,000 Cooper Cameron** 08/2010 2500 CityWest Westchase 68,000 TGS-NOPEC Geophysical 08/2010 *Renewal of 695,000 SF and expansion of 187,687 SF, **Renewal COLLIERS INTERNATIONAL | P. 3
  • 11. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET HOUSTON OFFICE MARKET SUMMARY (CBD, SUBURBAN & CITYWIDE) INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL RATE CLASS TOTAL (SF) (SF) RATE (%) (SF) RATE (%) TOTAL (SF) Q3-2010 Q2-2010 Q3-2010 YTD AVG ($/SF) CBD A 26,726,873 2,282,115 8.5% 407,328 1.5% 2,689,443 10.1% 9.3% (194,016) (435,872) $35.16 B 8,816,266 1,974,148 22.4% 61,710 0.7% 2,035,858 23.1% 23.0% (4,442) (131,085) $23.87 C 1,426,156 781,947 54.8% 0 0.0% 781,947 54.8% 54.0% (11,827) 13,441 $16.15 TOTAL 36,969,295 5,038,210 13.6% 469,038 1.3% 5,507,248 14.9% 14.3% (210,285) (553,516) $29.87 SUBURBAN A 68,523,499 12,509,859 18.3% 725,597 1.1% 13,235,456 19.3% 19.6% 221,943 72,499 $27.30 B 69,810,068 10,796,668 15.5% 778,415 1.1% 11,366,648 16.3% 16.3% (34,158) 101,149 $17.88 C 19,303,683 2,174,524 11.3% 36,615 0.2% 2,127,764 11.0% 11.3% (3,086) 68,613 $14.73 TOTAL 157,637,250 25,481,051 16.2% 1,540,627 1.0% 26,729,868 17.0% 17.1% 184,699 242,261 $21.77 OVERALL A 95,250,372 14,791,974 15.5% 1,132,925 1.2% 15,924,899 16.7% 16.6% 27,927 (363,373) $28.92 B 78,626,334 12,770,816 16.2% 840,125 1.1% 13,402,506 17.1% 17.0% (38,600) (29,936) $18.65 C 20,729,839 2,956,471 14.3% 36,615 0.2% 2,909,711 14.0% 14.2% (14,913) 82,054 $14.94 TOTAL 194,606,545 30,519,261 15.7% 2,009,665 1.0% 32,237,116 16.6% 16.5% (25,586) (311,225) $23.11 HOUSTON SUBURBAN OFFICE MARKET SUMMARY INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL RATE CLASS TOTAL (SF) (SF) RATE (%) (SF) RATE (%) TOTAL (SF) Q3-2010 Q3-2010 YTD AVG ($/SF) ALLEN PARKWAY A 1,217,048 211,890 17.4% 120,877 9.9% 332,767 27.3% (1,191) 16,824 $28.44 B 3,081,442 218,692 7.1% 2,636 0.1% 221,328 7.3% 4,470 (36,202) $23.21 C 1,164,650 408,533 35.1% 0 0.0% 408,533 35.1% 1,779 12,563 $19.39 TOTAL 5,463,140 839,115 15.4% 123,513 2.3% 962,628 17.6% 5,058 (6,815) $24.83 BAYTOWN B 525,544 4,600 0.9% 0 0.0% 4,600 0.9% 0 800 $18.08 C 60,396 2,603 4.3% 0 0.0% 2,603 4.3% 2,184 2,184 $15.76 TOTAL 585,940 7,203 1.2% 0 0.0% 7,203 1.2% 2,184 2,984 $17.24 BELLAIRE A 1,389,252 114,770 8.3% 28,288 2.0% 143,058 10.3% (21,339) (27,924) $22.54 B 952,823 44,060 4.6% 60,131 6.3% 104,191 10.9% (60,486) (53,624) $19.19 C 546,968 47,592 8.7% 0 0.0% 47,592 8.7% (7,111) (15,391) $15.09 TOTAL 2,889,043 206,442 7.1% 80,419 3.1% 294,841 10.2% (88,936) (96,939) $20.55 CONROE A 60,000 0 0.0% 0 0.0% 0 0.0% 0 0 - B 192,859 14,282 7.4% 0 0.0% 14,282 7.4% 112 6,264 $16.24 C 157,335 4,275 2.7% 0 0.0% 4,275 2.7% 0 0 $15.00 TOTAL 410,194 18,557 4.5% 0 0.0% 18,557 4.5% 112 6,264 $15.79 E. FORT BEND A 3,535,437 1,094,685 31.0% 15,069 0.4% 1,109,754 31.4% 31,178 (452,768) $27.15 B 2,061,851 311,867 15.1% 2,999 0.1% 314,866 15.3% (20,295) 5,103 $18.29 C 163,968 2,820 1.7% 0 0.0% 2,820 1.7% 810 5,272 $17.50 TOTAL 5,761,256 1,409,372 24.5% 18,068 0.3% 1,427,440 24.8% 11,693 (442,393) $23.73 COLLIERS INTERNATIONAL | P. 4
  • 12. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET HOUSTON SUBURBAN OFFICE MARKET SUMMARY INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL RATE CLASS TOTAL (SF) (SF) RATE (%) (SF) RATE (%) TOTAL (SF) Q3-2010 Q3-2010 YTD AVG ($/SF) FM 1960 A 2,267,021 1,487,314 65.6% 2,071 0.1% 1,489,385 65.7% 36 33,500 $26.12 B 4,669,277 962,648 20.6% 61,797 1.3% 1,024,445 21.9% (27,535) 39,590 $15.55 C 762,145 62,778 8.2% 2,463 0.3% 65,241 8.6% 7,640 24,546 $14.50 TOTAL 7,698,443 2,512,740 32.6% 66,331 0.9% 2,579,071 33.5% (19,859) 97,636 $19.37 GREENWAY A 6,167,603 973,500 15.8% 136,251 2.2% 1,109,751 18.0% 25,077 (42,338) $27.27 B 2,551,339 254,628 10.0% 1,459 0.1% 256,087 10.0% 22,356 (7,678) $21.16 C 924,839 262,270 28.4% 0 0.0% 262,270 28.4% 1,456 (15,215) $16.92 TOTAL 9,643,781 1,490,398 15.5% 137,710 1.4% 1,628,108 16.9% 48,889 (65,231) $25.07 GULF FREEWAY/PASADENA A 75,066 23,414 31.2% 6,273 8.4% 29,687 39.5% 547 547 $28.03 B 1,709,790 194,162 11.4% 13,481 0.8% 207.643 12.1% (19,388) 2,751 $19.74 C 1,126,564 106,867 9.5% 3,590 0.3% 110,457 9.8% 18,672 7,372 $14.23 TOTAL 2,911,420 324,443 11.1% 23,344 0.8% 347,787 11.9% (169) 10,670 $18.77 I-10 EAST B 274,672 79,131 28.8% 9,260 3.4% 88,391 32.2% 2,349 9,343 $13.84 C 157,955 0 0.0% 6,536 4.1% 6,536 4.1% (6,526) (6,526) $11.91 TOTAL 432,627 79,131 18.3% 15,796 3.7% 94,927 21.9% (4,187) 2,817 $13.63 KATY FREEWAY A 11,071,761 2,445,653 22.1% 23,979 0.2% 2,469,632 22.3% 112,513 271,539 $28.17 B 6,904,995 811,017 11.7% 75,872 1.1% 886,889 11.7% (16,625) 301,226 $18.31 C 1,813,421 189,948 10.5% 1,522 0.1% 191,470 10.6% 5,596 18,476 $15.06 TOTAL 19,790,177 3,446,618 17.4% 101,373 0.5% 3,547,991 17.9% 101,484 591,241 $23.56 KINGWOOD/HUMBLE A 158,640 25,904 16.3% 0 0.0% 25,904 16.3% 4,800 4,800 $29.50 B 1,795,933 184,857 10.3% 3,741 0.2% 188,598 10.3% (15,801) 35,365 $20.42 C 663,736 27,108 4.1% 0 0.0% 27,108 4.1% (445) 650 $14.91 TOTAL 2,618,309 237,869 9.1% 3,741 0.1% 241,610 9.2% (11,446) 40,815 $19.88 NASA/CLEAR LAKE A 809,372 81,818 10.1% 6,214 0.8% 88,032 10.9% 6,025 3,714 $21.92 B 3,174,855 205,620 6.5% 19,807 0.6% 225,427 7.0% 4,804 33,902 $21.39 C 1,228,410 169,703 13.8% 13,047 1.1% 182,750 14.9% (3,314) (6,681) $15.73 TOTAL 5,212,637 457,141 8.8% 39,068 0.7% 496,209 9.5% 7,515 30,935 $20.51 NORTH BELT/GREENSPOINT A 4,618,495 239,116 5.2% 62,232 1.3% 301,348 6.5% 13,960 43,168 $19.38 B 5,288,025 1,303,011 24.6% 152,713 2.9% 1,455,724 27.5% (101,948 (144,038) $15.69 C 1,346,611 212,993 15.8% 9,457 0.7% 222,450 16.5% (8,709) (29,184) $13.32 TOTAL 11,253,131 1,755,120 15.6% 224,402 2.0% 1,979,522 17.6% (96,697) (130,054) $16.04 NORTHEAST/OUTLIER B 265,773 39,918 15.0% 0 0.0% 39,918 15.0% (348) 7,616 $15.33 C 149,813 12,506 8.3% 0 0.0% 12,506 8.3% 4,403 (3,266) $12.00 TOTAL 415,586 52,424 12.6% 0 0.0% 52,424 12.6% 4,055 4,350 $14.31 COLLIERS INTERNATIONAL | P. 5
  • 13. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET HOUSTON SUBURBAN OFFICE MARKET SUMMARY INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL RATE CLASS TOTAL (SF) (SF) RATE (%) (SF) RATE (%) TOTAL (SF) Q3-2010 Q3-2010 YTD AVG ($/SF) NORTHWEST A 3,724,724 1,322,400 35.5% 1,404 0.0% 1,323,804 35.5% 30,976 83,828 $25.33 B 6,710,072 1,473,546 22.0% 26,567 0.4% 1,500,113 22.4% 38,607 (64,757) $15.37 C 1,546,532 83,458 5.4% 0 0.0% 83.458 5.4% 10,405 39,402 $12.22 TOTAL 11,981,328 2,879,404 24.0% 27,971 0.2% 2,907,375 24.3% 79,988 58,473 $19.73 NORTHWEST OUTLIER A 89,750 0 0.0% 0 0.0% 0 0.0% 0 0 - B 135,457 1,594 1.2% 0 0.0% 1,594 1.2% 0 5,978 $17.70 TOTAL 225,207 1,594 0.7% 0 0.0% 1,594 0.7% 0 5,978 $17.70 RICHMOND/FOUNTAINVIEW B 761,420 72,286 9.5% 0 0.0% 72,286 9.5% 4,327 6,295 $15.83 C 693,325 36,949 5.3% 0 0.0% 36,949 5.3% (1,478) 14,292 $14.73 TOTAL 1,454,745 109,235 7.5% 0 0.0% 109,235 7.5% 2,849 20,587 $15.56 SAN FELIPE/VOSS A 1,741,228 272,931 15.7% 2,688 0.2% 275,619 15.8% 3,658 (26,530) $29.48 B 3,271,828 302,666 9.3% 24,839 0.7% 326,505 10.0% (23,195) 8,297 $19.78 C 161,393 21,403 13.3% 0 0.0% 21,403 13.3% 265 497 $17.40 TOTAL 5,174,449 597,000 11.5% 26,527 0.5% 623,527 11.5% (19,272) (17,736) $23.05 SOUTH A 80,000 74,500 93.1% 0 0.0% 74,500 93.1% 0 5,500 $26.63 B 379,764 23,164 6.10% 0 0.00% 23,164 6.10% 3,740 6,650 $22.99 C 223,029 38,920 17.50% 0 0.00% 38,920 17.50% 3,300 3,300 $16.70 Total 682,793 145,584 21.30% 0 0.00% 145,584 21.30% -1,960 6,450 $23.39 SOUTH MAIN/MED CENTER A 3,916,577 363,337 9.3% 0 0.0% 363,337 9.3% (1,196) (12,309) $30.92 B 3,791,116 328,347 8.7% 4,800 0.1% 333,147 8.8% 4,090 (101,287) $20.17 C 2,745,096 112,916 4.1% 0 0.0% 112,916 4.1% (26,745) 15,364 $17.28 TOTAL 10,452,789 804,600 7.7% 4,800 0.1% 809,400 7.7% (23,851) (98,232) $24.15 SOUTHEAST/OUTLIER A 159,304 0 0.0% 0 0.0% 0 0.0% 0 0 - B 456,504 73,177 16.0% 0 0.0% 73,177 16.0% (2,423) (1,698) $22.28 C 22,783 12,533 55.0% 0 0.0% 12,533 55.0% (12,533) (12,533) $24.00 TOTAL 638,591 85,710 13.4% 0 0.0% 85,710 13.4% (14,956) (14,231) $22.51 SOUTHWEST A 1,505,805 432,270 28.7% 52,056 3.5% 484,326 32.2% 11,656 (19,623) $15.94 B 6,043,028 1,234,928 20.4% 158,895 2.6% 1,393,823 23.1% (41,313) (30,417) $15.63 C 2,475,389 259,768 10.5% 0 0.0% 259,768 10.5% 11,994 12,701 $11.96 TOTAL 10,024,222 1,926,966 19.2% 210,951 2.1% 2,137,917 21.3% (17,663) (37,339) $15.20 SOUTHWEST FAR/OUTLIER A 87,710 2,371 2.7% 0 0.0% 2,371 2.7% 7,745 7,745 $28.00 B 616,117 77,253 12.5% 0 0.0% 77,253 12.5% 14,318 14,463 $26.84 C 128,735 0 0.0% 0 0.0% 0 0.0% 0 (3,000) - TOTAL 832,562 79,624 9.6% 0 0.0% 79,624 9.6% 22,063 19,208 $27.00 COLLIERS INTERNATIONAL | P. 6
  • 14. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON OFFICE MARKET HOUSTON SUBURBAN OFFICE MARKET SUMMARY INVENTORY DIRECT VACANCY SUBLEASE VACANCY VACANCY VACANCY RATE (%) NET ABSORPTION (SF) RENTAL RATE CLASS TOTAL (SF) (SF) RATE (%) (SF) RATE (%) TOTAL (SF) Q3-2010 Q3-2010 YTD AVG ($/SF) WEST LOOP/GALLERIA A 16,303,906 1,536,703 9.4% 187,307 1.1% 1,724,010 10.6% (41,296) 46,804 $29.95 B 5,545,754 1,217,757 22.0% 14,820 0.3% 1,232,577 22.2% (17,291) 75,609 $19.92 C 426,332 2,444 0.6% 0 0.0% 2,444 0.6% 7,430 20,950 $16.50 TOTAL 22,277,992 2,756,904 12.4% 202,127 0.9% 2,959,031 13.3% (51,157) 143,363 $26.45 WESTCHASE A 7,636,999 1,329,788 17.4% 36,357 0.5% 1,366,145 17.9% 27,340 108,583 $30.03 B 5,374,721 937,457 17.4% 59,658 1.1% 997,115 18.6% 84,214 (9,884) $18.88 C 441,936 53,425 12.1% 0 0.0% 53,425 12.1% 5,476 475 $15.16 TOTAL 13,453,656 2,320,670 17.2% 96,015 0.7% 2,416,685 18.0% 117,030 99,174 $25.11 THE WOODLANDS A 1,907,801 477,495 25.0% 44,531 2.3% 522,026 27.4% 11,454 27439 $28.42 B 3,275,109 426,000 13.0% 84,940 2.6% 510,940 15.6% 27,155 (8,518) $20.32 C 172,322 42,712 24.8% 0 0.0% 42,712 24.8% (17,635) (17,635) - TOTAL 5,355,232 946,207 17.7% 129,471 2.4% 1,075,678 20.1% 20,974 18,322 $23.55 OFFICE DEVELOPMENT PIPELINE Houston’s development activity remained dormant in Q3 2010, with no new additions to the office buildings already under construction. The 2M square feet under construction are as follows: Indermuehle & Company’s 19,130-square-foot Sugar Creek Office Park (E. Fort Bend County 4 3 submarket) and Caldwell Companies’ 15,367-square-foot Webster Office Building (NASA/Clear Lake submarket). Two CBD office projects—Hines’ 972,474-square-foot Main Place (slated for delivery by February 2011) and Trammell Crow Company’s Hess Tower (formerly Discovery Tower, scheduled for completion by October 2010)—continue to be the sole high-profile buildings under construction at the end of the third quarter. Notably, both downtown projects began construction before the economic downturn of late 2008. Developers have ventured to introduce new product in high- 1 2 growth suburban markets, including a project in the East Fort Bend County submarket: Newland Communities’ 40,000-square-foot The Exchange at Telfair (expected by year-end 2010), which will be part of the planned mixed-use development for one of the area’s newest and most 5 successful master-planned communities of the same name. Other suburban projects include Greenwood Corporation’s 156,000-square-foot Chasewood Crossing II in the FM 1960-Highway 249 submarket (scheduled for completion in April 2011), as well as Black Forest Ventures’ 70,000-square-foot Black Forest Park, located in The Woodlands submarket and slated for delivery by November 2010. The German investment firm Black Forest Ventures (based in The Woodlands) recently made news with the acquisition of the Stanford Financial Center in the Galleria submarket, and is considered by industry leaders likely to continue expanding in Houston. SELECT OFFICE BUILDINGS UNDER CONSTRUCTION BUILDING NAME ADDRESS SUBMARKET SF LEASED DEVELOPER EST. DELIVERY MainPlace 1 811 Main St. CBD 972,474 10.1% Hines Holdings Inc. 02/2011 Hess Tower 2 1501 McKinney St. CBD 844,763 100.0% TCC Development 10/2010 Chasewood Crossing II 3 19450 State Hwy 249 FM 1960/Hwy 249 156,000 0.0% Greenwood Corporation 04/2011 Black Forest Park 4 4526 Research Forest Dr. The Woodlands 64,000 0.0% Black Forest Ventures 12/2010 The Exchange at Telfair 5 University Blvd. & Hwy 59 E. Fort Bend 40,000 0.0% Newland Communities 12/2010 Total SF Under Construction 2,077,237 COLLIERS INTERNATIONAL | P. 7
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