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Houston’s Office Market First Quarter 2010 Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments. Really Bad Things Effecting the Office Market. Job Growth: A little locally but none nationally. Worse in other cities/states/countries
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Houston’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments
Really Bad Things Effecting the Office Market • 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 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?????
Job Losses Related To Recessions 1990-91 2001 1981-82 2008-09 Source: BLS, Grubb & Ellis
Unemployment Rate Houston 8.5% Note: Houston’s unemployment is lower than the National average Source: BLS, Grubb & Ellis
Annual Job Gains / Lost, Houston Source: BLS, University of Houston Institute for Regional Forecasting
Houston Office Statistics First Quarter 2010 Source: Grubb & Ellis
Office Vacancy Rates by Class Source: Grubb & Ellis
Office Vacancy Rates by Submarket 2010-Q1 Winners & Losers Source: Grubb & Ellis
Average Citywide Asking Rents $29.65 $19.85 $15.66 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. Average $/SF/Year Full Service Gross * As of 1st Quarter 2010
Office Asking Rents – Class A $36.54 $27.96 Note: Average overall $29.65 Average Class A $/SF/Year Full Service Gross * As of 1st Quarter 2010
Office Asking Rents – Class B $25.85 $18.86 Note: Average overall $19.85 Average Class B $/SF/Year Full Service Gross * As of 1st Quarter 2010
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
Three Eldridge Place Energy Crossing I Westchase Park Bldg 1 Granite Towers Phase II Eldridge Oaks – Phase I Square Feet 350,000 SF 305,528 SF 239,114 SF 272,361 SF 210,968 SF Year Built Oct 2009 Mar 2009 Aug 2009 Sep 2009 Leased 0% 0% 19.4% 38.1% 39.5% Direct Space Available 350,000 SF 305,528 SF 192,771 SF 168,621 SF 123,906 SF $22 – $24 NNN $22.50 NNN Negotiable $22.50 NNN $19.50 NNN Quoted Rental Rate Leasing Company Transwestern CB Richard Ellis Stream Realty Partners Simmons Vedder Partners Granite Properties Owner Transwestern Behringer Harvard Opus West Simmons Vedder Partners Granite Properties Large Blocks of Space in New ProjectsTrophies or Train Wrecks Sep 2009
Top 20 Office Investment Markets – Q1 2010 Source: Real Capital Analytics
Houston Tenants Can Expect: • Asking rents will hopefully bottom out late 2010 or early 2011. • Net absorption: Remain in moderate negative territory as businesses cut overhead and/or reduce their SF. • Very aggressive landlords: Don’t loose a tenant and roll out the red carpet for all good prospects. • Sublease Options: Will continue to compete with landlords. • Distressed Sales: Could have an impact on certain submarket rents. Lower investment basis could allow new owners to ask for even lower rents.
Really Good News: • Houston: Best office market in the U.S. • Houston: Getting very positive press nationally and internationally and attracting global investor interest. • Energy Prices: HIGH and getting HIGHER. • Energy Demand: Increasing. Does the U.S. have the “@?<#$*%$” 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.
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
Houston LEED Certified Office Buildings 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’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments