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Market News and Trends
The Houston office market recently sustained its worst quarterly negative absorption rate since the 1st quarter of 2004. Houston posted a total of 720,000 SF negative absorption for 2nd quarter 2009, nearly double the loss in the 1st quarter of this year. Class A office properties experienced 241,000 SF of negative absorption for the 2nd quarter 2009. The overall office vacancy was 13.94% in the 2nd quarter including a total of 3.8 million SF of sublease space on the market.
The Galleria/Uptown Class A office market endured a tough 2nd quarter as Stanford Financial's office closed, leaving 161,000 SF (10 leased floors) vacant at 5051 Westheimer. Occupancy in the area fell by 379,516 SF, pushing the annual space loss to just over 902,000 SF and the vacancy rate back to 12%. Technology firm Black Box Network Services also vacated space this quarter, leaving approximately 190,000 SF in Williams Tower.
The office market has taken a significant turn toward a more tenant favorable environment over the past few months. Landlords have to be more aggressive in negotiations by offering more concessions in addition to lowering asking rents in order to drive tenant interest amid challenging economic conditions.
According to the Texas Workforce Commission, the Houston-SugarLand-Baytown metropolitan area had a net gain of 2,200 jobs in June, decreasing the metro area's unemployment rate to 8%. Overall in Texas the unemployment rate rose to 7.5% and nationwide increased slightly to 9.5% in June from 9.4% in May. Thus far in 2009, 5.7 million jobs have been lost in the US according to figures released by the Bureau of Labor Statistics.
The Texas banking merger and acquisition market, that slowed significantly in 2008, has virtually come to a hault. Only two merger deals were finalized before June 30th, compared to 13 in 2008 and 25 in 2007. Through the end of June, 45 banks have failed nationwide.
Leases
• NRG Texas and Reliant, NRG's retail electric company, has signed a 10 year lease for 234,159 SF at Pavilions Tower in Houston's central business district. Pavilions Tower is the 11-story office portion of Houston Pavilions, a 560,000 SF mixed-use development at 1201 Fannin Street. NRG/Reliant will take 10 floors with move in scheduled for March 2011. Reliant will relocate from RRI Energy Plaza. Cushman & Wakefield of Texas Inc. represented the tenant. The rumored economics are as follows: $21.00 NNN effective, $11.50 Op.Ex., $50.00/SF TI allowance from slab. |
• Quorum Business Solutions Inc. signed a 63,084 SF office lease at 3010 Briarpark Drive in Houston. The software solutions provider inked a direct deal for approximately 36,000 SF that is currently being marketed for sublease and will expand into another 33,000 SF of additional space at the expiration of the near term sublease. CB Richard Ellis represented the tenant. Rumored economics are as follows: 7 year term, $18.25 NNN effective, $25.00/SF TI allowance, parking abated.
• Vestas Technology signed a 28,534 SF office lease at 1111 Bagby Street and will take occupancy in August of this year. Jones Lang LaSalle represented the tenant. Rumored economics are as follows: 4 year term, $25.00 NNN flat, $13.50/SF Op.Ex., $20.00/SF TI allowance.
• United Health Group signed a 25,000 SF renewal at Park Towers South. Jones Lang LaSalle represented the tenant. Rumored economics are as follows: 5 year term, $20.00 NNN effective, $10.00/SF TI allowance, 25% parking abatement.
• Quanex Building Solutions signed a 20,500 SF renewal at 1900 West Loop South. Fritsche Anderson Realty Partners represented the tenant. Rumored economics are as follows: 5.5 year term, $25.00 Gross effective, 6 months of free rent, $6.00/SF TI allowance.
Deals in Play
• Aker Kvaerner is re-entering the market for 200,000 SF. The target submarkets are Westchase and the Energy Corridor. Mark O'Donnell with Studley is the broker.
• Aon is starting their search for 50,000 SF in the Galleria submarket. This deal is being represented by David Bale & Ronnie Deyo with Jones Lang LaSalle.
• McDermott is in the market (Energy Corridor) for 225,000 SF. Lucian Bukowski & Mike Boehler with Jones Lang LaSalle are the brokers.
• Gulf Interstate Engineering is in the market for 80,000 - 90,000 SF. CB Richard Ellis is the broker. Timing is 2011.
• EDG is in the market for 90,000 SF. Randy Wilhelm with NAI Houston has been engaged as the broker. Timing is 2010.
• Spark Energy, represented by Bruce Fehn with Equis, is in the market for 60,000 SF. Spark Energy is currently located at 3010 Briarpark in sublease space. Timing is 2010.
• Pon North America, currently located at 2500 CityWest, is in the market for 12,000 SF. They are focused exclusively on the Class A Westchase submarket.
• Galliano Marine is in the market for 12,700 SF of Class A space. They are focused exclusively on the Westchase submarket.
• Amerex Brokers LLC is evaluating the market for 30,000 SF. Jim Pratt with Colliers is representing the prospect.
• Sigue is in the market for 30,000 SF of call center space. The tenant is focused on options in the Greenspoint submarket. |
Investment Activity
• Harris County Toll Road Association has purchased a 108,000 SF office building at 7701 Wilshire Place Drive from Gulf States Toyota. The 6-story building, on 4.9 acres, was built in 1982. The buyer will move in this summer.
• Brookfield Asset Management sold a 157,672 SF, five building office portfolio in Houston to SLS Houston Properties LLC. The price was undisclosed. JPMorgan Chase occupies approximately 67,800 SF across the portfolio with an average remaining lease term of 12.5 years.
• Beacon Investment Properties LLC purchased two office buildings totaling 179,191 SF at 8866 and 8876 Gulf Freeway in Houston from KBS Realty Advisors for approximately $10 million, or $56.00/SF. The two office buildings were built in 1983 and 1984 respectively and are on a total of 6.69 acres. The buildings were 81% leased at the time of the sale. Dan Miller and Marty Hogan with HFF represented the seller. The buyer represented itself.
• Lone Star College System purchased the HP North Campus in Houston from Hewlett-Packard Co. for $42.1 million, or approximately $36.00/SF. The 1.17 million SF, Class A office-flex campus, at 20555 State Highway 249, was built in 1990 and consists of four buildings. Ken Gilbert of CB Richard Ellis and Stewart Robinson of Hines Holdings represented the seller. There was not a broker for the buyer.
• Beacon Investment Properties LLC purchased 1717 St. James Place in the Houston Galleria/Uptown submarket from Parkway Properties for $8.7 million. The building is a 6-story, 110,000 SF, Class B office property constructed in 1975. As of June 1st, the building was 88% leased.
• The Det Norske Veritas office building in Katy has been sold by Duke Realty Corp. into a joint venture the company formed last year with CB Richard Ellis Realty Trust. The 90,000 SF building is 100% leased to Norway-based Net Norske Veritas. The property is located at 22535 Colonial Parkway, near the intersection of Interstate 10 and the Grand Parkway.
Development Activity
• Contruction of MainPlace, a high-rise office building in downtown Houston, is currently underway. The new $200 million, 46-story tower includes 12 garage levels and 36 levels of office space totaling 1.5 million SF. The structure offers a pedestrian tunnel connecting the building to the downtown tunnel system and retail space. MainPlace is set to be completed by February 2011.
• Citycentre, a mixed-use project located at the intersection of Beltway 8 and Interstate 10W, is nearing completion. The Citycentre complex is home to three office towers totaling 425,000 SF of first class office space. Citycentre One and Citycentre Two recently opened with several tenants in place. Amenities in the complex include: Lifetime Athletic, Studio Movie Grill and Norris Conference Center. Contruction will be complete in mid-August on the balance of the project. |
