TEXAS SNAPSHOT, FEBRUARY 2008

Houston Office Market

Peeples

Strong leasing activity has led to improving occupancy rates in office product across the board in Houston, according to Clay Peeples, a principal with Boyd Commercial, LLC/CORFAC International in Houston. In particular, the most significant activity has been in the Interstate 10 Energy Corridor, the Westchase submarket, the western leg of the Beltway and the central business district (CBD), Peeples says.

Energy, engineering and energy-related firms are expanding, and many of these firms are located on the west side of the city. This has given impetus to the new development in these areas, according to Peeples. For example, Eldridge Place, a 330,000-square-foot office building development by Trammell Crow Company, currently is under construction at the northeast corner of Eldridge and I-10 West. The building has been leased to Foster Wheeler, a global engineering and construction contractor and power equipment supplier. Also on the west side is a 343,000-square-foot building being constructed by CORE Development. This project is located further south on Eldridge and has been 100 percent leased to Dow Chemical, a diversified chemical company.

In the CBD, there are several major projects planned and/or announced, including a 960,000-square-foot Hines building, a Crow building with 800,000 square feet and a building by Morgan Stanley spanning approximately 600,000 square feet, according to Peeples. “In addition, Brookfield has talked about building a 1 million-square-foot building if it secures a 50 percent lead tenant,” Peeples says.

New to the market, Duke Realty recently has completed a new low-rise office project on Beltway 8 near West Road. Betz Realty, also with its first Houston office project, is under construction with an office building at Fallbrook and Beltway 8. Radler Enterprises also building the first phase of a two-building project located near Beltway 8 and SH 249. Each building will contain 165,000 square feet,

According to Peeples, rental rates for existing Class A buildings in the CBD are sitting at around $35 per-square-foot gross. The rents for the new buildings starting construction in 2008 will be in the mid $30s per-square-foot on a net basis. Overall vacancy rates in the office sector are in the range of 10 percent to 11 percent; the rates are lower for Class A space.

“The I-10 Energy Corridor, Westchase, west Beltway and CBD markets will continue to be strong in 2008,” Peeples says. “Houston enjoyed substantial positive absorption in the office market during 2007. Barring a major national recession, this trend should continue through the year.”

— Clay Peeples is a principal with Boyd Commercial, LLC/CORFAC International in Houston.

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