Download

Houston’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED APVP, Office and Healthcare Investments

www.grubb-ellis.com

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

www.grubb-ellis.com

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?????

www.grubb-ellis.com

Source: BLS, Grubb & Ellis

2008-09

2001

1981-82

Job Losses Related To Recessions

1990-91

www.grubb-ellis.com

3

4

5

6

7

8

9

10

11

1980 1985 1990 1995 2000 2005 2010

Per

cen

t

Source: BLS, Grubb & Ellis

Unemployment Rate

Houston 8.5%

Note: Houston’s unemployment is lower than the National average

www.grubb-ellis.com

-80

-60

-40

-20

0

20

40

60

80

100

120

00 02 04 06 08 10

Th

ou

san

ds

Source: BLS, University of Houston Institute for Regional Forecasting

Annual Job Gains / Lost, Houston

www.grubb-ellis.com

Houston Office Statistics

Source: Grubb & Ellis

First Quarter 2010

Class Total SF Vacant SF Vacant % 1Q 2010 NetAbsorption

Average Asking Rent

A 84,305,024 12,844,640 15.2% (928,539)Chevron-Fluor-ABB

$29.65

B 66.979,757 12,545,919 18.7% 84,509 $19.85

C 17,308,844 2,920,856 16.9% 114,397 $15.33

Total 168,593,625 28,311415 16.8%

(729,633) $23.53

www.grubb-ellis.com

Net Absorption vs. Vacancy Rate

-417,231

-2,906,419

-1,502,706

345,196

2,310,133

5,936,141

-729,633

-2,409,560

2,127,935

6,092,128

3,033,324

4,000,000

3,000,000

2,000,000

1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10

5%

7%

9%

11%

13%

15%

17%

19%

21%

Net Absorption Vacancy Rate

www.grubb-ellis.com

Office Vacancy Rates by Class

Source: Grubb & Ellis

www.grubb-ellis.com

Performance by Top Office Building Owners

Owner RBA Direct Available

Direct Vacancy

Annual % Change

Hines 8,778,075 1,823,224 11.0% +0.8%

Brookfield 8,465,430 958,491 6.0% -0.9%

Behringer Harvard 3,862,073 655,271 15.1% +7.4%

Thomas Properties Group

3,823,021 836,173 10.9% +1.8%

www.grubb-ellis.com

Class A

0% 10% 20% 30% 40%

Greenspoint

NASA/Clear Lake

CBD

Uptown/Galleria

Citywide

Greenway

Allen Parkway

Katy Freeway

Westchase

The Woodlands

FM 1960

Sugar Land

Northwest Fwy

Source: Grubb & Ellis

Class B

0% 10% 20% 30%

Clear Lake

Greenway

Uptown/Galleria

The Woodlands

Westchase

Gulf Freeway

Katy Freeway

Citywide

Sugar Land

CBD

Greenspoint

FM 1960

Northwest Fwy

Office Vacancy Rates by Submarket2010-Q1 Winners & Losers

www.grubb-ellis.com

Average Citywide Asking Rents

Average $/SF/Year Full Service Gross

$29.65

* As of 1st Quarter 2010

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.

$19.85

$15.66

www.grubb-ellis.com

Office Asking Rents – Class A

Average Class A $/SF/Year Full Service Gross* As of 1st Quarter 2010

$36.54

$27.96

Note: Average overall $29.65

www.grubb-ellis.com

Office Asking Rents – Class B

Average Class B $/SF/Year Full Service Gross* As of 1st Quarter 2010

$25.85

$18.86

Note: Average overall $19.85

www.grubb-ellis.com

Houston Sublease Space Available

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

4.66 MM

Note: Good News – The sublease market is not growing

www.grubb-ellis.com16

• 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

www.grubb-ellis.com

Large Blocks of Space in New ProjectsTrophies or Train Wrecks

Simmons Vedder Partners

Simmons Vedder Partners

$22.50 NNN

168,621 SF

38.1%

Aug 2009

272,361 SF

Westchase Park Bldg 1

Granite PropertiesStream Realty PartnersCB Richard EllisTranswesternLeasing Company

Granite PropertiesOpus WestBehringer HarvardTranswestern Owner

$19.50 NNNNegotiable$22.50 NNN$22 – $24 NNN Quoted Rental Rate

123,906 SF192,771 SF305,528 SF350,000 SFDirect Space Available

39.5%19.4%0%0%Leased

Sep 2009Mar 2009Oct 2009 Year Built

210,968 SF239,114 SF305,528 SF350,000 SF Square Feet

Granite Towers Phase IIEnergy Crossing IThree Eldridge PlaceEldridge Oaks – Phase I

Sep 2009

www.grubb-ellis.com

Houston Office Investment Trends

www.grubb-ellis.com

Top 20 Office Investment Markets – Q1 2010

Source: Real Capital Analytics

www.grubb-ellis.com

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.

www.grubb-ellis.com

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.

www.grubb-ellis.com

Update on “Green” Buildings

www.grubb-ellis.com

Houston LEED Office Building Inventory

Non LEED, 158,607,405

LEED Certified,

15,994,977

Inventory Breakdown

www.grubb-ellis.com

Houston LEED Certified Office Space Trends

37

11

34

0

10

20

30

40

2006 2007 2008 2009

0

2,500,000

5,000,000

7,500,000

10,000,000

12,500,000

15,000,000

2006 2007 2008 2009

Total # Projects Achieving Certification Per Year

Total SF Achieving Certification per Year

www.grubb-ellis.com

LEED Certified Office Buildings by Submarket

0

2,500,000

5,000,000

7,500,000

10,000,000

CBD Uptown/Galleria Katy Freeway Northwest Freeway

Woodlands

8 Buildings

3 Buildings6 Buildings

9 Buildings 1 Building

www.grubb-ellis.com

Chase Tower1,683,893 SFLEED, GoldCBD

Williams Tower1,476,973 SFLEED, GoldUptown/Galleria

First City Tower1,333,312 SFLEED, GoldCBD

One & Two Shell1,792,214 SFLEED, GoldCBD

919 Milam542,919 SFLEED, SilverCBD

Houston LEED Certified Office Buildings

Houston’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED APVP, Office and Healthcare Investments