1. The Tenant Advisor
Aug / Sept 2010
Inside this issue:
Lease Negotiations in Today’s Office Market
Project Management for an Office Build-Out
The Build to Suit Lease Alternative
12 Common Office Leasing Mistakes
Plus: How Green is Houston’s Office Market?
View the Tenant Advisor on the Web
www.coydavidson.com
2. Contents
Lease Negotiations in Today’s Office Market
More for the Money
Project Management for an Office Build-Out
Complete your Office Build-Out on Schedule, under Budget, with NO Surprises
The Build-to-Suit Lease Alternative
Design and Customize a New Office Facility without the Up-front Capital
Expenditures of Ownership
Common Office Leasing Mistakes
12 common mistakes Office Tenants Make
How Green is Houston’s Office Market?
Houston’s LEED Certified Office Buildings
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
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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 end of summer is approaching and we are more than halfway through the
third quarter of 2010. Overall, Houston continues to be recognized as one of the
strongest metros in the U.S. for business activity, with the employment sector
Coy Davidson
adding 168,900 jobs since the beginning of the year, a marked improvement from
Senior Vice President this time last year.
Office Services Group
Direct: 713.830.2128
Houston recorded negative net office space absorption of 316,519 square feet in
coy.davidson@colliers.com the second quarter after posting positive absorption of 200,021 square feet in the
www.coy.davidson.com first quarter. Since the beginning of the 2009, Houston has recorded 3.1 million
square feet of negative office space absorption with the overall vacancy rate
increasing to 16.5% from 13.5% during the same period.
While we have not seen the same level of rental rate erosion as compared to other
parts of the country, the Houston office market has clearly shifted to the tenant’s
favor. Prevailing economic uncertainty is likely to continue negatively impacting
overall office leasing activity levels through the end of 2010.
The current economic climate offers tremendous opportunities for office tenants to
secure attractive leasing terms and minimize occupancy costs for several years to
come. I am pleased to provide you with a copy of the of my newsletter, which is
tailored to the corporate office space user. 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. Page 4
The Tenant Advisor
L e a s e N e g o t i a t i o n s i n To d a y ’s O ff i c e M a r k e t
More for the Money I should note there is a occupancy cost of the
difference between quoted lease, the opportunity to
rents and the final negotiate more free rent,
negotiated rental rates. The abated parking charges, as
gap between initial quoted well as tenant improvement
rents and where deals are allowances that provide for
getting signed is certainly a turn-key build-out or
bigger than it was 18 upgraded premises rather
months ago. In fact one of than focusing too much on
the first indicators the office the rental rate, is the
market is improving will be effective negotiation today.
The Houston office market
when we begin to see Depending on when you
has shown a recent trend of
substantial compression in signed your last lease, you
“negative absorption” That
the gap between quoted might expect a lower rental
means that more space is
and actual rental rates. rate, but the real cost
becoming available than is
saving opportunity is the
being leased or purchased. The biggest difference
other concessions. I should
As a result, the law of today in terms of the overall
note that some landlords
supply and demand is flexibility in the latitude of
are not in a cash surplus
helping to cut rental rates negotiations by building
position, so a big tenant
and creating incentives for owners is reflected in other
work-letter is difficult to
building owners to offer leasing incentives such as:
obtain. In these cases the
tenants additional
concessions. Since the Free Rent concession to focus on
should be on free rent. “The biggest difference
beginning of 2009 the Tenant Improvement today in terms of
Houston office market has Allowances Locking in Long-term overall flexibility in the
recorded 3,188,507 square latitude of negotiations
Abated Parking Companies who are
feet of negative absorption, today by building
Charges comfortable making a
while the overall vacancy owners is reflected in
longer term commitment
rate has increased from Particularly for tenants with leasing incentives
also have the opportunity to
13.5% to 16.5%. solid credit, a Landlord is such as: free rent,
lock into lower rates for a
much more willing to offer tenant improvement
This has CFO’s and longer term. In today’s
attractive incentives that allowances and abated
corporate real estate market conditions building
don't diminish the face parking.”
managers looking for their owners are more willing to
opportunity to lock-in better rental rate as severely, fix face rental rates for
long and short-term lease which helps preserve the either a longer period or
deals. However, better future market value of the with less severe rental ad-
does not necessarily mean asset. This is trade off for justments throughout the
significantly lower rental the Landlord, up-front free lease term.
rates. Since the downturn rent periods and liberal
in the Houston office sector tenant improvement
began in the first quarter of allowances impact the
2009, the erosion of rental building cash flow today,
values at least in terms of but maintains a higher cash
quoted rents has not been flow later in the lease when
all that severe. Average the building owner is more
quoted rents for Class A likely to sell or refinance the
space in the CBD are off asset.
6.6% and just 1.9% for For the Houston office
suburban Class A office tenant who is more
projects. concerned about the overall
5. Page 5
The Tenant Advisor
P r o j e c t M a n a g e m e n t f o r a n O ff i c e B u i l d - O u t
By: Bart Morey the competitive bid process. Communication
Interviewing prospective
team members affords the Look for someone who is not
Tenant the opportunity to going to push paper from one
acquire a sense of who has team member to the next. If
the best understanding of their idea of problem
Tenant’s needs. In today’s resolution is to pick up the
competitive market, serious phone and blame someone,
bidders can get to the low run away. The PM should
number. The decision direct a consensus driven
frequently hinges on the partnering effort to achieve
You’ve got a project coming quality of personnel. A the project’s goals.
up that involves that whole qualified Project Manager So the last question is how
design and construction orchestrates this process to does the Tenant afford
process thing. And when you discern accurate information Project Management? Well “ Utilizing a competent
start thinking about it, the so the Tenant can make the fact of the matter is how Project Management
process doesn’t seem all that informed and intelligent can a Tenant not afford to professional insures that
overwhelming? We’ve all run decisions. hire a PM. Fees usually the build-out process is
projects of one size or
So now you’ve made the range from 2% to 5% of completed on schedule,
another; from installing a
decision to hire a Project project cost. under budget, with NO
door knob to remodeling a
house. Some of us have Manager but what do you 1. If the PM can’t save his surprises.”
even managed fairly base your decision on? At fee in the process, then
complicated adventures. And the end of an interview with a the PM selection
they all get built. Sometimes qualified candidate, the process was flawed.
they don’t turn out exactly the Tenant should have a clear
and detailed understanding 2. Utilizing a PM insures an
way we imagined. Some of
of how the PM is going to expedited schedule to
them took a little more time
manage the design and minimize disruption to
than we expected. And most
construction process. Their the Tenant.
of them cost more than we
originally anticipated. Sound presentation should address 3. Having a PM on board
familiar? The role of Project the following: allows the Tenant to
Management is to improve Details and examples on how remain focused on their
this process and insure the the competitive bid process business.
right product is delivered on is going to be presented.
schedule and under budget. The design and construction
Methodology to process is not complicated.
Bringing on a Project But it does have a lot of
documentation and
Manager at the onset of the moving parts which need to
follow-up on critical
process will establish project be effectively managed.
project issues.
goals, define realistic task Utilizing a competent Project
durations, and establish an Problem solving Management professional
all inclusive project budget. philosophy insures that this process is
During the Consultant and completed on schedule,
Contractor selection phases, Regularly scheduled under budget, with NO
well defined goals will clarify reporting tools surprises.
expectations and maximize
Bart Morey is Vice President of Project Management in the Houston office of
Colliers International. Bart has been directly responsible for the project
management of approximately 4.24 million square feet of commercial projects
totaling over $236 million in value while also working on behalf of the owner and
directing projects encompassing over 4.4 million square feet worth approximately
$170 million. His educational background includes a Bachelor of Science in Civil
Engineering and a Master of Civil Engineering from Rice University.
6. Page 6
The Tenant Advisor
The Build to Suit Lease Alternative
incorporate the most recent courting tenants with
cost-effective energy attractive leasing terms and
systems in the project, concessions. However, the
incorporate state of the art difference may be offset in
technology and construction the long-term by savings in
materials with the goal of space efficiency, reduced
operating efficiency. The operating costs and
building can be designed to improved company image.
Why Should You Consider project the company's image,
When considering new
a Build-to-Suit ? attract and retain employees
construction, in some
as well as enhance
In order for a business to instances particularly for very
productivity and logistics.
satisfy its office space large corporations, the user
These key objectives can
requirements they have may have better borrowing
sometimes be challenging in
basically four options: power or a lower cost of
varying degrees, when
capital than the developer.
1. Lease or sublease leasing or renovating an
So it would seem owning the
space; existing facility.
building yourself would be “The build-to-suit lease
2. Acquire an existing Long Term Solution more cost effective. is an alternative that
building and renovate; However, for most compa- allows the user tenant to
A build-to-suit is not a short
nies real estate is not their design and customize
3. Build and own your own term occupancy solution. A
core business and they and new facility to meet
facility; or long-term lease commitment
choose to allocate their the enterprises unique
is necessary for the
4. A build-to-suit-to-lease. investment capital to other space needs without the
developer / owner to acquire
strategic operating initiatives large up-front capital
The build-to-suit-to-lease is financing and the tenant’s
that offer a higher rate of expenditures that comes
an alternative that allows the creditworthiness must be
return on their investment. from building and
user/tenant to design and acceptable to lenders to
customize a new facility to obtain favorable financing For every company each of owning.“
meet the enterprise’s unique terms. The build-to-suit the four occupancy strategies
space needs without the process is lengthy and may has its own merits and
lar ge up-fr ont capit al take several years to disadvantages. A prudent
expenditure that comes with complete. Once the build-to- business owner or
building and owning. In a suit decision is made and a management team will
build-to-suit-to-lease developer/owner is selected; evaluate each option with
arrangement, a company a transaction has to be their real estate advisors to
selects a real estate finalized which is inherently determine which alternative
developer to design and build more complicated since there best suits their needs. In
a customized facility on a is a lease and complex some cases some of these
preferred site and then construction component options may not be a realistic
leases it from the developer. beyond your typical office or viable strategy. However,
Under this structure, the user build-out. In addition, the for the company desiring a
never owns the facility. preferred land site has to be building designed specifically
acquired and the building has for their unique needs, the
A build-to-suit can offer to be designed and built. build to suit lease model
several advantages to the offers a new, customized
company whose current Evaluating All Your Space
facility without the significant
space no longer ideally Options
capital expenditure of
meets their objectives. It building and owning your
Build-to-suits are generally
allows the tenant to expand space.
considered more expensive
the realm of optimal location
than leasing existing (vacant)
choices and maximum space
space, particularly in today’s
efficiency, since the facility is
market where vacancy rates
designed specifically for the
have risen and building
tenant. New construction
owners are aggressively
allows a developer to
7. Page 7
The Tenant Advisor
1 2 C o m m o n O ff i c e L e a s i n g M i s t a k e s
Leasing office space for your project leader as the 9. Failing to allow for
company is a complex internal single point of expansion space
process and a significant contact 10. Paying too little attention
financial commitment. Here 5. Making inaccurate to exit strategy and
are the 12 most common estimations of the lease flexibility when
mistakes made by tenants company’s space negotiating the lease
when securing office space requirements
for their business needs: 11. Lacking the knowledge
6. Failing to leave enough of future opportunities;
time at the end of the often, the best deals are
1. Beginning the lease to fulfill “make secured well in advance
negotiation of a renewal good obligations” of the space becoming
or new lease too late 7. Acting to slowly once a available
2. Lacking clearly defined decision is made, and 12. Failing to assemble the
business or real estate consequently missing entire integrated project
objectives out on opportunities team; broker, architect,
3. Focusing exclusively on 8. Agreeing to terms prior contractor and legal
financial costs to obtaining a space counsel
4. Failing to appoint a planning perspective
H o w G r e e n i s H o u s t o n ’s O ff i c e M a r k e t ?
LEED certification you will Building Council (USGBC) “Houston has over 50
notice many projects that which provides third-party LEED Certified office
were either developed by verification that a building buildings, including
Hines or are currently was designed and built using some of the city’s most
managed by the Houston strategies aimed at improving high profile office
based developer. These performance across all the projects”
include some of Houston metrics that matter most:
most high profile office energy savings, water
projects such as Chase efficiency, CO2 emissions
Recently I came across an Tower, Bank of America reduction, improved indoor
article on-line that reported Center and Williams Tower environmental quality, and
the city of Miami was getting as well as the newest stewardship of resources and
its first new LEED Certified "Green" office project, Main sensitivity to their impacts.
Office Building, which Place which is very near
There are four levels of
seemed kind of surprising completion.
certification:
since there have been many
office buildings in the 1. LEED Certified 26 - 32
Houston market that have points
attained some level of LEED
2. Silver Level 33 - 38
certification.
points
Why does Houston have its
3. Gold Level 39 - 51
fair share of LEED certified
points
office projects? One of the
world's leaders in sustainable 4. Platinum Level 52+
What is LEED?
office development and points (69 possible)
ownership has been Houston LEED is an internationally
based Hines. When you scan A completed list of Houston’s
recognized green building
the list of office buildings in LEED Certified Office
certification system,
Houston that have attained Buildings follows on page 8
developed by the U.S. Green
and 9.
8. Page 8
The Tenant Advisor
H o u s t o n : L E E D C e r t i f i e d O ff i c e B u i l d i n g s
Building Name Address Class Submarket Square Feet
Chase Tower 600 Travis St A Central Business District 1,683,893
First City Tower 1001 Fannin St A Central Business District 1,333,312
Bank of America Center 700 Louisiana St A Central Business District 1,268,480
1100 Louisiana 1100 Louisiana St A Central Business District 1,265,332
One Shell Plaza 910 Louisiana St A Central Business District 1,226,276
CenterPoint Energy 1111 Louisiana St A Central Business District 1,079,524
Main Place 811 Main St. A Central Business District 972,474
Hines 717 Texas 717 Texas Ave A Central Business District 696,228
5 Houston Center 1401 McKinney St A Central Business District 580,875
Two Shell Plaza 777 Walker St A Central Business District 565,938
919 Milam 919 Milam St B Central Business District 542,919
Chase Bank Bellaire 6330 W Loop Fwy S B Bellaire 293,798
SpawGlass Corporate Offices 13800 West Rd B FM 1960 / Hwy 249 19,874
Williams Tower 2800 Post Oak Blvd A Galleria / Uptown 1,476,973
1800 West Loop South 1800 W Loop South A Galleria / Uptown 399,777
2000 St. James 2000 St James Pl B Galleria / Uptown 335,027
Five Greenspoint 17001 Northchase Dr A Greenspoint / North Belt 451,748
Four Greenspoint Plaza 16945 Northchase Dr A Greenspoint / North Belt 403,384
Two Greenspoint Plaza 16825 Northchase Dr A Greenspoint / North Belt 348,768
Three Greenspoint Plaza 233 Benmar Dr A Greenspoint/ North Belt 253,562
One Greenspoint Plaza 16855 Northchase Dr A Greenspoint / North Belt 223,159
Green Bank Greenbriar Branch 4000 Greenbriar Dr B Greenway Plaza 20,000
Cemex Center 920 Memorial City Way A Katy Freeway East 336,000
Gulf States Toyota - Enclave Campus 1345 Enclave Pky A Katy Freeway West 466,318
Helios Plaza 201 Helios Way A Katy Freeway West 390,000
Eldridge Oaks Phase 1 1080 Eldridge Pky A Katy Freeway West 350,000
The Plaza at Enclave 1254 Enclave Pky A Katy Freeway West 343,541
Trammell Crow Energy Center Phase 1 585 N Dairy Ashford A Katy Freeway West 332,000
Energy Center II 575 N Dairy Ashford A Katy Freeway West 305,585
Three Eldridge Place 737 Eldridge Pky A Katy Freeway West 305,528
Sysco-Phase I 1370 Enclave Pky A Katy Freeway West 300,000
Sysco - Phase II 1390 Enclave Pky A Katy Freeway West 300,000
SHELL WOODCREEK PHASE 1 150 N Dairy Ashford Rd B Katy Freeway West 170,000
Boeing 3700 Bay Area Blvd B NASA / Clear Lake 399,008
9. Page 9
The Tenant Advisor
H o u s t o n : L E E D C e r t i f i e d O ff i c e B u i l d i n g s
Building Name Address Class Submarket Square Feet
Kirksey Office Building 6909 Portwest Dr B North Loop West 24,000
Westway II - GE Oil & Gas 4424 W Sam Houston Pky N A Northwest Far 250,000
DNA Westway III 4425 Westway Park Blvd A Northwest Far 181,814
Beltway Lakes Phase I 5825 N Sam Houston Pky W A Northwest Far 163,436
Phase Two 5875 N Sam Houston Pky W A Northwest Far 162,416
Intellicenter-Houston 4650 Westway Park Blvd B Northwest Far 158,518
Westway One 11210 Equity Dr A Northwest Far 143,961
Building 4 4920 Westway Park Blvd B Northwest Far 130,000
Satterfield & Pontikes-Westway Park 11000 Equity Dr A Northwest Far 65,000
EQUIVALENT DATA 4809 Westway Park Blvd B Northwest Far 18,893
Tomball Medical Plaza 506 Graham Dr B Northwest Outlier 55,000
GCRBC-Mobile Opns Complex 9990 Fannin St B South 85,075
Life Science Plaza 2130 W Holcombe Blvd A Medical Center 300,000
American Heart Association 10060 Buffalo Speedway B Medical Center 25,000
Granite Westchase II 10350 Richmond Ave A Westchase 318,551
Granite Westchase 10370 Richmond Ave A Westchase 309,767
Westchase Park 3700 W Sam Houston Pky S A Westchase 272,361
One Oak Park 6002 Rogerdale Rd A Westchase 153,342
3131 Briarpark 3131 Briarpark Dr B Westchase 68,800
Oak Park Plaza 6051 N Course Dr A Westchase 52,907
Anadarko Tower 1201 Lake Robbins Dr A Woodlands 807,586
1200 Timberloch Place 1200 Timberloch Pl A Woodlands 243,484
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