The Texas unemployment rate at
the end of the first quarter of 2014
stands at 5.7%, a full point less
than the national average
and the lowest it has been
since November of 2008....
1Q’14
Office Market Report
The Houston Office Market
Economic Outlook
Since the second half of 2010, the Houston
Metropolitan Area’s supply of vacant office
space, as a percentage of total inventory, has
steadily declined quarter-over-quarter. 2014
proved to be no exception to this trend, with
positive 2,549,293 square feet of office space
being absorbed in the first few months.
Economists are in disagreement about whether
or not 2014 will be the year that the United
States economy finally returns to its prerecession
levels, but there have been several positive
recent developments that indicate that it will,
at the very least, become less anemic in its
improvement. For starters, employment is
looking up. Hiring slowed significantly earlier in
the quarter, leading to fears that the economy
was not improving as stably as analysts had
begun to think, but it seems this lull was the
result of severe winter weather.
By the end of the first quarter 2014, the Houston Office market’s
vacancy rate stood at 11.2%, a decrease of 0.3% from its previous
quarter. By now, this figure is already low enough to match the
vacancy rates seen just prior to the economic downturn. Should
this downward trend continue, vacancy may even fall beneath
the 10-year low of 10.7% that the city reached at the end of the
fourth quarter 2007. Rental rates continue to rise in the face of a
tightening market with the average quoted price per square foot
ending the quarter at $26.27 per square foot, an increase of 3.5%
from the last quarter.
Vacancy among Class A properties throughout the city fell from
9.4% to 9.0% over the length of the first quarter and net absorption
reached a positive 2,155,374 square feet of space. Citywide,
Class A vacancy shifted from double-digit to single-digit figures
throughout the course of 2013, with vacancy rates at the end of
the first quarter 1.3% lower than the first quarter of 2012. Average
quoted Class A rental rates rose by 4.06% to end the quarter at
$33.29 per square foot.
Class B vacancy has been more stable in the recent past, and has
not strayed more than 0.3% in either direction of its 13.7% figure
since the first quarter of 2012. Between the ends of the fourth
quarter of 2013 and the first quarter of 2014, vacancy only moved
downward 0.1%, from 13.7 to 13.6%, as a result, net absorption hit
a positive 251,891 square feet. The average quoted Class B rental
rate increased by 2.42% to $20.76 per square foot, over the same
length of time.
A total of 36 new buildings delivered during the first quarter,
adding 2,473,507 square feet of office space to the Houston
market. Total inventory for the city now stands at 276,400,987
square feet—114,019,035 square feet of which is housed within
354 Class A buildings, and 122,210,314 square feet situated in
2,645 Class B buildings.
A total of 12,599,197 square feet of office space is currently under
construction in the Houston market at the end of the first quarter,
with 12,210,317 square feet of Class A construction and 388,880
square feet of Class B construction contributing to this figure.
Now that conditions have improved, hiring has taken off again,
with an estimated 191,000 jobs added in March across both small
and large businesses, which brought the unemployment rate
down to 6.7%.
Texas, on the other hand, is performing admirably. Texas and
New York are currently the only states that have restored all the
jobs lost in the economic downturn, while the rest of the nation
plays catch-up. The Texas economy on its own is now larger
than Michigan’s, Georgia’s, and North Carolina’s economies
combined—and Houston’s economic development has played
a significant role in making this the case. The Houston Business
Cycle Index pins the city’s rate of economic growth at a robust
5.2% as recently as February, a step-up from an already strong
5.1% showing in January. By comparison, the United States’
projected growth rate is expected to fall between 2.5% and 3.0%
for the near future.
The Texas unemployment rate at the end of the first quarter of
2014 stands at 5.7%, a full point less than the national average
and the lowest it has been since November of 2008. Houston’s
own unemployment rate fell slightly beneath the state average,
at about 5.6%. Recently, unemployment has increased slightly,
but this has been the result of an increase in the size of the labor
force, not an increase in job losses.
The city’s employment grew at an annualized rate of 3.3%,
between January and February, but the biggest percentage gains
in the first quarter were made within the construction and mining
and financial activities sectors. These considerations, along with
strong job growth in oil and gas, good performance in refining
and plastics, and overall positive labor market conditions, imply a
healthy economic foundation Houston can expect to build on for
some time.
Some other selected positive economic indicators:
•
Oil and gas production has doubled in the past six years.
•
Building permits for the twelve months ending in February 2014 rose to $6.2 billion, a 19.1% increase over the previous twelve month
period. Contributing to this figure are $2.4 billion of residential building permits and $3.8 billion of commercial building permits.
•
89,472 homes were sold in the Houston area during the twelve month period ending in February of 2014 for a total sales volume of
$21.6 billion—the highest twelve-month sales volume on record.
•
In the first two months of this year, foreign trade exceeded $40.3 billion in total volume: $21.4 billion in exports and $18.9 billion in
imports. This represents a 3% increase over the total volume of foreign trade passing through the Port of Houston in the first two
months of 2013.
Sources: NAI Houston Research, CoStar, Federal Reserve Bank of Dallas, Greater Houston Partnership, Houston Chronicle, Russell Investments
HOUSTON, T X
Select Top Office Leases
(In terms of square footage)
• American Bureau of Shipping: One Greenspoint Place – 224,833 SF
Renewal (Greenspoint/N Belt West)
• Sasol North America: Woodbranch Plaza IV – 168,050 SF (Katy Freeway West)
• Texas Children’s Hospital: Southwest Corporate Center - 84,782 SF
(Southwest Beltway 8)
• IHI: One EldridgePlace – 61,455 SF (Katy Freeway West)
• NetIQ: 515 Post Oak Blvd – 55,380 SF (Post Oak Park)
• Clear Channel Communications: 2000 West Loop – 50,180 SF
(Galleria/Uptown)
• HOK: Phoenix Tower – 49,018 SF (Greenway Plaza)
• National Oilwell Varco: 2500 CityWest – 47,136 SF (WestChase)
• Texas Financial Group/Northwest Mutual Life Insurance: One Riverway –
39,617 SF Renewal (Riverway)
• Hapag-Lloyd: The Reserve at Greens Crossing II – 32,656 SF Renewal
(Greenspoint/North Belt West)
• NEXT Financial Group: 2500 Wilcrest Dr. – 32,569 SF Renewal (Westchase)
Select Largest Deliveries
(All delivery dates listed are according to current estimates)
• Anadarko Tower 2 – 31 stories, 550,000 SF. Owned and occupied by
Anadarko. (Woodlands)
• Energy Tower III – 17 stories, 428,831 SF. Fully occupied by Technip.
(Katy Freeway)
“
The Market
The Houston’s city-wide
office market continues to
be very active and robust
just as it has been for
the past 12-18 months.
Total net absorption,
year-to-date, has already
reached 2.1 MSF in Class
A buildings with 12.6 MSF
under construction. With
continued technology
enhancements in the
• 11910 Katy Fwy – 14 stories, 375,000 SF. 100% occupied.
(Katy Freeway)
natural gas shale sector,
• Energy Crossing II – 8 stories, 321,508 SF. 87% occupied.
(Katy Freeway)
we are forecasting
• 17320 Katy Fwy – 4 stories, 186,375 SF. 100% occupied by Mustang
Engineering. (Katy Freeway)
continued growth in the
• 11340 FM 2920 – 3 stories, 140,000 SF. 100% occupied by Baker
Hughes. (Woodlands)
office sector this year as
• 3990 Rogerdale Rd. – 3 stories, 125,000 SF. 100% occupied by C&J
Energy Services. (Westchase)
that industry builds on its
• 13411 Hilliard St. – 4 stories, 120,000 SF. 100% occupied by the United
States Coast Guard. (NASA/Clear Lake)
current momentum.
Selected Top Construction
• ConocoPhillips – 546,604 SF. Delivers Q2 2015. (Katy Freeway)
• Southwestern Energy HQ – 515,000 SF. Delivers Q4 2014. (Woodlands)
• Noble Energy Center II – 456,000 SF. Delivers Q2 2015. (FM 1960)
• Air Liquide Center South – 452,370 SF. Delivers 4Q 2015.
(Katy Freeway)
• Energy Tower IV – 428,831 SF. Delivers Q4 2014. (Katy Freeway)
• Hilcorp Energy Tower – 406,600 SF. Delivers Q1 2015. (Downtown)
• 3737 Buffalo Speedway – 400,000 SF. Delivers Q1 2015.
(Greenway Plaza)
• 200 N Dairy Ashford Rd – 375,000 SF. Delivers Q1 2014. (Katy Freeway)
• Two Briarlake Plaza – 337,888 SF. Delivers Q2 2014. (Westchase)
-Griff Bandy
Principal, NAI Houston
Largest Contiguous Space
Building Name
Square Feet
Building Name
CBD
800 Bell St
Five Allen Center
609 Main St
800 Capitol St
Rusk St
2100-2120 Travis Ave
22 Waugh Dr
909 Fannin St
1121 Walker Ave
811 Louisiana St
2229 San Felipe
811 Rusk St
1201 Louisiana St
608 Fannin St
Energy Corridor/Westchase
1,257,962
999,000
948,058
749,999
605,911
273,000
238,439
234,333
200,000
188,695
150,277
139,938
124,083
119,994
Under Renovation
Proposed
Under Construction
Proposed
Proposed
Under Renovation
Proposed
Existing
Existing
Existing
Under Construction
Existing
Existing
Existing
368,000.0
233,942.0
176,762.0
154,975.0
139,282.0
135,622.0
124,651.0
100,000.0
Proposed
Existing
Existing
Existing
Proposed
Existing
Existing
Proposed
Galleria
W Loop South
2425 West Loop South
515 Post Oak Blvd
5444 Westheimer Rd
1885 Saint James Pl
2700 Post Oak Blvd
5051 Westheimer Rd
1717 W Loop Fwy S
Square Feet
915 N Eldridge Pky
Core Park West
11750 Katy Fwy
CityWestPlace 6
Eldridge & Enclave Pky
Core Park West
11700 Katy Fwy
1430 Enclave Pky
CityWestPlace 5
1414 Enclave
16200 Park Row
3600 W Sam Houston Pky S
9811 Katy Fwy
10496 Old Katy Rd
16200 Park Row
700 Town & Country Blvd
15375 Memorial Dr
10496 Old Katy Rd
19219 Katy Fwy
Greenhouse Rd
Greenhouse Rd
Barker Cypress and Highwa
2050 W Sam Houston Pky S
6004 Rogerdale Rd
1212 W Beltway 8 N
Greenhouse Rd
Greenhouse Rd
I 10 & Grand Pky
16001 Park Ten Place Dr
Merchants Way
1001 Campbell Rd
2929 W Sam Houston Pky N
3151 Briarpark Dr
Vacancy
New Construction
• Decreased to 11.2% to end Q1-2014 citywide for
Class A & B buildings.
(Building Classes A & B Combined)
• C lass A projects reported a 9.0% Vacancy Rate citywide.
• Class B projects reported a 13.7% Vacancy Rate citywide.
• Overall Vacancy Rates downtown decreased slightly to 11.2%
Rental Rates
(Building Classes A & B Combined)
• Average Rental Rates rose to $26.27 PSF
500,090
445,777
402,825
387,200
349,188
321,317
320,528
312,564
306,900
300,760
300,000
300,000
281,412
264,000
261,103
254,466
211,740
207,000
203,149
200,000
200,000
176,000
165,841
153,342
150,000
150,000
150,000
139,169
136,950
127,953
125,000
120,000
119,703
Proposed
Proposed
Under Construction
Proposed
Proposed
Proposed
Existing
Existing
Proposed
Proposed
Under Construction
Under Construction
Under Construction
Proposed
Under Construction
Under Construction
Under Construction
Existing
Proposed
Proposed
Proposed
Proposed
Under Construction
Proposed
Proposed
Proposed
Proposed
Proposed
Existing
Proposed
Proposed
Proposed
Existing
• E
nding Q1 2014, there were 12,599,197 SF of new office
buildings under construction.
• By comparison, Q1 2013 had 11,466,279 SF of new office
buildings under construction.
Sublease Space
• Inventory of sublease space available citywide has increased
in class A & B Buildings by 68,231 SF to a total of 1,880,574
SF at the end of Q1.
• L andlord concessions such as free rent, parking charge
abatements, etc. are on the decline.
Absorption:
Measure of Demand in Square Footage for Office Space (All Office Space)
Total Net Absorption for 1Q 2014 YTD: 2,587,877 SF - All Classes
(Up from 1,823,837 SF in 4Q 2013)
The Class A buildings recorded net absorption of 2,155,374 SF, while Class B buildings posted a positive absorption of 251,891 SF for
the quarter.
OFFICE
Leasing
Absorption & Deliveries | Class A & B Office Buildings
Citywide | Past 9 Quarters
Class A Direct Net Absorption
2,500,000 Class A
RBA Delivered
Class B
Direct Net Absorption
Class B RBA Delivered
2,000,000 1,500,000 1,000,000 500,000 0
2012 1Q
2012 2Q
2012 3Q
2012 4Q
2013 1Q
2013 2Q
2013 3Q
2013 4Q
2014 1Q
(500,000)
Vacancy Rates
16.0%
14.0%
12.0%
10.0%
Direct Vacant % Class A
8.0%
Direct Vacant % Class B
6.0%
4.0%
2.0%
0.0%
2012 1Q
2012 2Q
2012 3Q
2012 4Q
2013 1Q
2013 2Q
2013 3Q
2013 4Q
2014 1Q
Rental Rates
$36.00 $34.00 $32.00 $30.00 $28.00 $26.00 $24.00 Avg Direct Rate Class A
$22.00 Avg Direct Rate Class B
$20.00 $18.00 $16.00 $14.00 $12.00 $10.00 2012 1Q
2012 2Q
2012 3Q
2012 4Q
2013 1Q
2013 2Q
2013 3Q
2013 4Q
2014 1Q
New Construction
14,000,000
12,000,000
10,000,000
8,000,000
RBA Under Const Class A
6,000,000
RBA Under Const Class B
4,000,000
2,000,000
-
2012 1Q
2012 2Q
2012 3Q
2012 4Q
2013 1Q
2013 2Q
2013 3Q
2013 4Q
2014 1Q
5
Select Sales Include:
Property Address
Sale Price
Sale Date
Price Per SF
$186,044,059
12/19/13
$362.46
$29,872,358
11/1/13
$307.03
$245,449,050
10/10/13
$210.00
4920 Westway Park Blvd (2 Properties)
$45,000,000
10/28/13
$172.14
20555 SH 249
$84,803,966
10/31/13
$170.48
712 Main St
5847 San Felipe St
10451 Clay Rd
5555 San Felipe St
$94,000,000
10/9/13
$118.36
14729 Highway 105 W
$1,100,000
12/9/13
$107.00
16850 Buccaneer Ln (3 Properties)
$6,000,000
12/9/13
$46.25
Office Space Statistical Changes
Year-over-Year and Quarter-over-Quarter
1Q13 vs. 1Q14
VACANCY RATE
NET ABSORPTION
CONSTRUCTION
ASKING RATES
4Q13 vs. 1Q14
NET ABSORPTION
VACANCY RATE
CONSTRUCTION
ASKING RATES
Recent Deliveries of Office Space (Houston, Tx)
Leased & Un-Leased Square Footage in Deliveries Since 2009
Chart Title
8,000,000
7,000,000
6,000,000
Square Feet
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2009
2010
2011
Leased
2012
Un-Leased
2013
2014
CLASS A & B
Office Space
Total Employment Growth
Highlight Total Number of Jobs Added per Year
Office Square Footage per Employee by Industry
Based Upon All Tenants
Square Feet
0
50
100
150
200
250
300
350
400
450
LAW FIRMS
AGRI-MINING/UTIL
RETAILERS/WHOLES
SERVICES
TRANSPORTATION
FINANCE/INS/RE
COMMUNICATIONS
BUSINESS-SERVICE
ENGINEERS/ARCHIT
GOVERNMENT
ACCOUNTANTS
MANUFACTURING
MEDICAL
7
SUBMARKET
Reports
Class A Market Statistics
Existing Inventory
Submarket
# Blds
Vacancy
Total RBA SF
Direct SF
Under Const SF
Quoted Rates
Bellaire
7
1,203,314
134,234
0
$26.00
Downtown
37
33,079,570
2,792,086
656,638
$38.46
E Fort Bend Co/Sugar Land
19
3,905,937
470,981
217,000
$26.66
FM 1960
20
3,798,687
531,479
511,500
$25.74
Greenway Plaza
16
6,224,406
440,107
660,437
$35.10
Gulf Freeway/Pasadena
1
22,706
7,586
0
$27.82
I-10 East
0
0
0
0
$0.00
Katy Freeway
73
17,753,665
385,563
3,825,722
$32.19
Kingwood/Humble
2
131,665
50,849
0
$31.65
NASA/Clear Lake
14
1,983,602
122,448
55,000
$24.48
North Belt
24
5,413,012
536,239
0
$31.78
Northeast Near
0
0
0
0
$0.00
Northwest
23
4,025,545
490,343
877,132
$27.02
Richmond/Fountainview
0
0
0
0
$0.00
San Felipe/Voss
3
1,714,929
276,037
0
$32.96
South
2
250,000
0
0
$27.19
South Hwy 35
0
0
0
0
$0.00
South Main/Medical Center
14
4,488,845
216,729
52,362
$28.50
Southwest
9
2,058,852
331,882
0
$16.64
West Loop
39
15,687,995
1,410,485
264,753
$34.81
Westchase
27
7,357,882
765,626
744,880
$36.85
Woodlands
24
4,918,423
134,409
4,344,893
$34.52
Totals
354
114,019,035
9,097,083
12,210,317
$33.29
SUBMARKET
Reports
Class B Market Statistics
Existing Inventory
Submarket
# Blds
Total RBA SF
Vacancy
Direct SF
Under Const SF
Quoted Rates
Bellaire
30
2,983,606
137,648
11,096
$22.12
Downtown
168
20,467,158
2,135,505
0
$25.10
E Fort Bend Co/Sugar Land
227
4,490,852
537,685
7,060
$22.22
FM 1960
355
8,475,311
1,377,076
13,850
$17.07
Greenway Plaza
47
4,088,563
356,043
13,575
$24.46
Gulf Freeway/Pasadena
147
3,366,388
398,242
0
$20.58
I-10 East
25
731,906
104,402
0
$16.74
Katy Freeway
318
13,384,631
1,229,998
9,800
$21.61
Kingwood/Humble
68
1,580,915
103,422
196,110
$20.43
NASA/Clear Lake
207
5,662,729
1,261,161
0
$18.54
North Belt
76
6,540,235
1,259,449
0
$16.14
Northeast Near
27
663,832
115,087
0
$19.32
Northwest
157
8,513,343
1,461,283
18,974
$19.57
Richmond/Fountainview
26
954,706
226,064
0
$16.69
San Felipe/Voss
38
3,572,590
348,169
0
$21.95
South
77
1,604,418
191,258
8,086
$26.35
South Hwy 35
33
350,280
8,082
0
$15.67
South Main/Medical Center
66
4,935,742
596,668
0
$24.57
Southwest
143
7,671,054
2,089,606
0
$16.75
West Loop
63
7,088,200
854,029
0
$26.13
Westchase
73
7,888,210
687,713
0
$19.83
Woodlands
269
7,137,389
471,157
110,329
$26.29
122,210,314
15,949,747
388,880
$20.76
Totals
2,645
9
SUBMARKET
Reports
Total Office Market Statistics
Existing Inventory
Submarket
# Blds
Total RBA SF
Vacancy
Direct SF
Under Const SF
Quoted Rates
Bellaire
37
4,186,920
271,882
11,096
$24.06
Downtown
205
53,546,728
4,927,591
656,638
$31.78
E Fort Bend Co/Sugar Land
246
8,396,789
1,008,666
224,060
$24.44
FM 1960
375
12,273,998
1,908,555
525,350
$21.41
Greenway Plaza
63
10,312,969
796,150
674,012
$29.78
Gulf Freeway/Pasadena
148
3,389,094
405,828
0
$24.20
I-10 East
25
731,906
104,402
0
$8.37
Katy Freeway
391
31,138,296
1,615,561
3,835,522
$26.90
Kingwood/Humble
70
1,712,580
154,271
196,110
$26.04
NASA/Clear Lake
221
7,646,331
1,383,609
55,000
$21.51
North Belt
100
11,953,247
1,795,688
0
$23.96
Northeast Near
27
663,832
115,087
0
$9.66
Northwest
180
12,538,888
1,951,626
896,106
$23.29
Richmond/Fountainview
26
954,706
226,064
0
$8.35
San Felipe/Voss
41
5,287,519
624,206
0
$27.46
South
79
1,854,418
191,258
8,086
$26.77
South Hwy 35
33
350,280
8,082
0
$7.83
South Main/Medical Center
80
9,424,587
813,397
52,362
$26.54
Southwest
152
9,729,906
2,421,488
0
$16.69
West Loop
102
22,776,195
2,264,514
264,753
$30.47
Westchase
100
15,246,092
1,453,339
744,880
$28.34
Woodlands
293
12,055,812
605,566
4,455,222
$30.41
2,999
236,229,349
25,046,830
12,599,197
$27.14
Totals
Methodology | Definitions | Submarket Map
22
9
Absorption (Net)
The change in occupied space in a given
time period.
4
Available Square Footage
12
290
13
Average Asking Rental Rate
90
90
8
59
290
7
90
10
ton Tollway
West Park Hous
19
Sam Houston Tollway
21
Westheimer
99
Building Class
15 20 2
5
14
1
10
10
6
225
18
6
90
288
59
3
Fo
rt Bend Tollway
Class A Product is office space of steel and
concrete construction, built after 1980, quality
tenants, excellent amenities & premium rates.
Class B product is office space built after 1980,
fair to good finishes & wide range of tenants.
11
6
Net rentable area considered available for lease;
excludes sublease space.
Rental rate as quoted from each building’s owner/
management company. For office space, a full
service rate was requested; for retail, a triple net
rate requested; for industrial, a NN basis.
6
59
45
16
10
Direct Vacancy
Space currently available for lease directly with the
landlord or building owner.
Market Size
Includes all existing and under construction
office buildings (office, office condo, office loft,
office medical, all classes and all sizes, both
multi-tenant and single-tenant, including owneroccupied buildings) within each market.
17
Overall Vacancy
All physically unoccupied lease space, either
direct or sublease.
SF/PSF
Square foot/per square foot, used as a unit of
measurement.
Sublease
Arrangement in which a tenant leases rental
property to another, and the tenant becomes the
landlord to the subtenant.
Sublease Space
Total square footage being marketed for lease by
the tenant.
1. Bellaire
12. N ortheast Near
2. D owntown - CBD + Midtown
13. N orthwest = North Loop West +
Northwest Far_ Northwest Near
3. E Fort Bend Co/Sugar Land
4. Fm 1960 + FM 1960/Champions
+ Fm1960/Hwy 249 +
FM 1960/I-45 North
5. Greenway Plaza
6. Gulf Freeway/Pasadena
7. I-10 East
8. Katy Freeway = Katy Freeway East
+ Katy Freeway West
9. Kingwood/Humble
10. N asa/Clear Lake
11. N orth Belt = North Belt East + North
Belt West/Greenspoint
14. Richmond
15. San Felipe/Voss
16. South
17. South Hwy 35
18. South Main/Medical Center
19. Southwest = Southwest Beltway 8 +
Southwest/Hillcroft
20. Westloop = Galleria/Uptown +
Riverway + Post Oak Park
21. Westchase = Westchase East +
Westchase West
22. Woodlands
Sublease Vacancy
Space currently available in the market for
sublease with an existing tenant within a building
acting as the landlord.
11
1Q’14
Office Market Report
1900 West Loop South, Suite 500
Houston, TX 77027
tel 713 629 0500
www.naihouston.com