TEXAS SNAPSHOT, JULY 2007

Houston Office Market

Boyles

Mixed-use developments and green buildings are the current trends in Houston’s office market, according to Dan F. Boyles Jr., a principal with NAI Houston. “There are more than seven substantial mixed-use developments underway in the Houston area,” Boyles says. “Each development has a component of office space, some larger than others. Office tenants in Houston are starting to recognize the benefits of these developments for their employees.”

In addition, Corporate America has bought into the idea that green is good, and many office developers and architects are responding to this demand. A majority of the new developments either announced or under construction are green buildings, such as the 65,000-square-foot 11000 Equity Drive and the 156,000-square-foot Beltway Lakes.

One development in Houston that’s making an impact is the City Centre mixed-use development at the former Town and Country Mall site. “This development is probably the largest development of its kind in the Houston area,” Boyles says. Located at the intersection of Beltway 8 and Interstate 10, it will be a true urban-style development with more than 400,000 square feet of Class A office space. “While not formally announced, it has been rumored that up to 150,000 square feet has already been pre-leased,” Boyles says. Other significant office projects in Houston include Ten West Corporate Center II (250,000 square feet), Energy Center Phase I (330,397 square feet), Granite Westchase II (318,557 square feet) 24 Waterway Avenue (308,000 square feet) and Granite Sugar Creek II (204,000 square feet).

According to Boyles, the majority of office development in Houston is taking place along Katy Freeway on the west side of town. While only six buildings totaling 250,000 square feet have been delivered since the beginning of this year, there is an additional 1.4 million square feet still under construction and expected to be delivered in the next 18 months.

Indianapolis-based Duke Realty is one of the few new developers in Houston’s office market with its 159,000-square-foot Sam Houston Crossing One development and another project planned in the Pearland area. “Most of the new development is by developers already in the market,” Boyles says.

Several companies are absorbing large chunks of office space in Houston, such as Mustang Engineering, which has taken 200,000 square feet at Ten West Corporate Center II; Alliance Wood Group Engineering, with 110,627 square feet at Parkview I; and National Oilwell Varco, LP taking 84,636 square feet at Parkwood Circle. Rental rates for Class A office space in Houston currently ranges from $22 to $35 gross per square foot.

In the coming years, Downtown and the Galleria/Uptown submarkets are two areas to watch. “Both markets have seen significant absorption during the last 12 months and space is extremely tight,” Boyles says. “There are a number of planned/rumored developments of Class A towers in both markets.” 

Overall, Houston’s office market continues to perform at a robust pace across the board, and there doesn’t appear to be an end in sight. “This is as strong of a market that I’ve seen in 17 years,” Boyles says.

— Dan F. Boyles Jr. is a principal with NAI Houston.

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