Office Highlights
Houston . Q4 2011
Leasing activity strengthens as
energy companies ramp up
operations
The Houston office market continues to experience robust activity
thanks to its unrivaled energy emphasis and bustling economy. Of the
fourth quarters’ largest leases, the top nine transactions in terms of total
square footage were completed by energy companies. The largest lease
of the quarter, Shell’s renewal in the Central Business District (CBD),
represented over 1.2 million square feet of leasing activity. Furthermore,
the majority of the positive absorption for the quarter was engendered
by energy company occupancies. For example, BP recently occupied
the entirety of Three Eldridge Place in the Katy Freeway submarket,
accounting for 305,528 square feet of positive absorption. Williams, a
leading energy infrastructure company, also expanded at 2800 Post
Oak Blvd (Williams Tower) with approximately 68,549 square feet of
positive occupancies on the lower floors of the Houston landmark.
These moves, in addition to several other occupancies for the quarter,
will push 2011 positive absorption just over the 2.5 million-square-foot
mark – an overwhelmingly positive indicator of demand.
Existing tenants continue to canvass the Houston market for quality
space, and new firms are entering the market on a monthly basis. The
CBD, Galleria/West Loop, Katy Freeway (Energy Corridor), Westchase,
and Woodlands submarkets remain the strongest with increasing rents
and decreasing vacancies. Recent construction starts in several of
these submarkets will eventually alleviate market tightness. However,
until new construction is delivered in late 2012 and into 2013, look for
rents to continue their upward spiral, vacancies to decrease, and
absorption to remain positive – all a sign of a landlord-favorable market.
Several new developments are planned in West Houston as the Katy
Freeway and Westchase submarkets are among the most marketable
regions for energy-related firms.
Fortified leasing and sales activity is expected to continue into 2012 as
Houston's employment base is projected to strengthen. The Greater
Houston Partnership anticipates that the Houston MSA will add
approximately 84,600 jobs in 2012. As a reference, the Houston MSA
added approximately 80,000 jobs in 2011. Houston has recovered an
impressive 111.7 percent of the 152,800 jobs lost during the recession –
an unrivaled figure on a national level. Houston’s oil and gas sector
continues to drive local job growth, creating 10,300 new jobs over the
past 12 months, or about one in every nine created in the region. Given
the high jobs multipliers for this sector — each job in oil and gas
supports between two and five jobs in other sectors of Houston’s
Tour activity
Leasing volume
Rents
Concessions
Sales volume
Construction
deliveries
Construction
starts
Arrows represent change from prior quarter
economy — the rapid job growth in oil and gas continues to support job
growth through the region. Furthermore, Houston’s unemployment rate
dropped significantly, decreasing from 8.1 percent in October to 7.6
percent in November 2011.
The Eagle Ford Shale formation continues to boost Houston’s economy.
Energy consulting firm Tudor, Pickering, Holt & Co. cites that in four years
the Eagle Shale could be responsible for 1.2 million barrels of oil per day,
or one-sixth of total U.S. production. Moreover, the play has 20 years of
drilling inventory remaining, a strong implication for its extended impact
on Texas. Activity has jumped from 20 to 200 rigs in the last 18 months;
there are now over 50 active drillers pulling in a total 400,000 barrels a
day. Overall implications are for a push towards the increased use and
pricing of natural gas, improvements in balance of payments, and the
continued phenomena of energy business combinations.
Leasing activity
• Shell has engaged in lease renewals at One and Two Shell Plaza in the
CBD submarket (804,491 square feet and 471,934 square feet,
respectively). The 15-year lease came with an agreement from owner
Hines to spend $40 million on building renovations. These leases
account for over 1.0 million square feet of transactions in the prized
CBD submarket.
• Universal Pegasus International has recently signed a long-term
159,844-square-foot lease renewal with expansion at Loop Central I &
II (4888 and 4848 Loop Central Drive, respectively).
• Schlumberger Limited has recently signed an approximately 105,000square-foot lease at 1200 Enclave Parkway in the booming Katy
Freeway submarket. Commencement is set for February of 2012.
• Carrizo Oil & Gas has signed an approximately 95,000-square-foot
lease at One Allen Center (500 Dallas Street) in the CBD, a move from
their office in 1100 Louisiana. This transaction represents a nearly 50.0
percent increase in the company’s current Houston office space.
Jones Lang LaSalle • Houston Office Highlights • Q4 2011 2
• RPC, Inc. has executed a 79,000-square-foot lease with expansion
at 2828 Technology Forest Boulevard in the Woodlands submarket.
Approximately 150 employees will occupy in February 2012. The
company is leaving behind a seven-acre facility it owns at 15015
Vickery Drive with 31,000 square feet of office space and 12,000
square feet of warehouse space. RPC also will vacate 13,000
square feet of office space at 16770 Imperial Valley Drive.
• Cobalt International Energy has decided to shift its operations to 920
Memorial City Way in the Katy Freeway submarket. Cobalt will
occupy approximately 71,546 square feet on levels 3 and 13-14.
Formerly known as the Cemex Center, the building will be renamed
the Cobalt center as Cemex, the worlds largest building materials
supplier, is vacating to another Katy Freeway building.
• Nexeo Solutions has made the decision to shift a number of its
employees to the Woodlands from Midwestern United States.
Nexeo leased 64,000 square feet on the top levels of 3 Waterway
Square Place, a 192,000-square-foot building which will soon be
constructed (expected delivery date is early 2013). While it waits for
construction to be completed, Nexeo leased 45,000 square feet of
temporary office space at 9303 Trails Drive and 14000 Woodloch
Forest Drive in the Woodlands.
• SM Energy Company has leased approximately 52,398 square feet
at One Eldridge Place (777 North Eldridge Parkway) in the Energy
Corridor submarket. This lease renewal came with an expansion of
22,389 square feet as they initially leased 30,000 square feet.
Tenants in the market
• Apache, 500,000 square feet (West Houston/Galleria/West Loop)
• Southwestern Energy, 500,000 square feet (Woodlands)
• Phillips 66, 450,000 square feet (Katy Freeway)
• American Bureau of Shipping, 400,000 square feet (Woodlands)
• ConocoPhillips, 300,000 square feet (Katy Freeway)
• LyondellBasell, 300,000 square feet (CBD)
Sales activity
• JP Morgan Asset Management has purchased the remaining 24.0
percent ownership stake in 9.1 million square feet of Texas office
space, 5.5 million square feet of it being in Houston (The Houston
Center complex and Fulbright Tower in the CBD, and The Post Oak
Central complex in Galleria/West Loop). JP Morgan’s purchase of
their remaining interest from Crescent Real Estate Holdings LLC did
not include Crescent's Greenway Plaza portfolio. Crescent is owned
by a joint venture between Barclays Capital and Goff Capital, Inc.
• Hess Tower, the recently constructed 844,763-square-foot, Trophy
building in the CBD, has recently traded to H&R REIT, a Canadianbased real estate investment group. The purchase has set a new
per-square-foot record for sales price at $524 per square foot
($442.5 million). Hess recently occupied the entirety of the building,
which was developed and sold by Trammell Crow in conjunction
with Principal Real Estate Investors.
• Crimson Real Estate Fund has purchased 2500 CityWest Boulevard
in the Westchase submarket (574,216 square feet, Class A) from
Thomas Properties and partner TPG/CalSTRS for $231 per square
foot, or approximate $132.5 million. The 25-story commercial
property was built in 1982 and is presently 94.0 percent occupied.
• Wells Core Office Income REIT has acquired the Westway II
building from the Dienna Nelson Augustine Company in the
Northwest submarket. This 242,374-square-foot, Class A building
sold for $290 per square foot, or $70 million. The building is 100.0
percent leased to four tenants; GE Oil & Gas occupies three-fourths
of the building.
• Two Sugar Creek Center (77 Sugar Creek Center Boulevard) has
recently sold to Boston-based firm TA Associates. Completed in
1999, the 143,410-square-foot building is 72.0 percent occupied and
includes a two-level, 240-space parking garage.
• Buildings on the market include:
• 601 Jefferson, 50.0 percent stake (1.0 million square feet,
Class B) and 500 Jefferson (391,000 square feet, Class B)
• 1000 Main Street (837,161 square feet, Class A)
• Brookhollow Central 1-3 (797,971 square feet, Class A), Under
Contract
• One City Centre (608,660 square feet, Class A)
• Waterway Plaza I & II (366,043 square feet, Class A)
• 1254 Enclave Parkway (344,000 square feet, Class A)
• 11757 Katy Freeway (280,435 square feet, Class A)
Construction activity
• ExxonMobil corporation is in the initial stages of developing a 385acre site along I-45 and Spring Creek. This site will serve to
consolidate all upstream Houston ExxonMobil activities into one
large office development, and will undoubtedly add value to the
surrounding Woodlands area.
• BBVA Compass will be the anchor tenant of a new 380,000-squarefoot building at 2200 Post Oak in the popular West Loop/Galleria
submarket. BBVA will occupy 156,000 square feet of this Redstone
Real Estate development, which will complete in May of 2013.
• MetroNational has recently broken ground on a 14-story, 325,000square-foot building at 945 Bunker Hill in the Katy Freeway/Energy
Corridor submarket.
• Skanska USA Commercial Development Inc. is breaking ground on
a speculative office building in the Galleria area at 3009 Post Oak
Boulevard. The move comes nearly two years after Skanska
announced it was acquiring the project site and one year after it first
estimated construction would begin. The 302,000-square-foot, LEED
Platinum building will have 12 stories of office space on top of eight
levels of garage parking. Although Skanska does not have any
tenants lined up, pent-up demand and a lack of recent construction
in the Galleria/West Loop submarket should draw tenants to
the building.
• CityCentre III in the Katy Freeway submarket has initiated
construction, featuring six floors of space for approximately 125,000
square feet of office space, including 16,809 square feet of ground
floor retail space. Projected delivery will be the summer of 2012.
• Halliburton is in the initial stages of constructing a 100,000-squarefoot building off of Milner Road in the Greenspoint/North Belt
submarket to be delivered in the first quarter of 2013.
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