Research & Forecast Report HOUSTON | OFFICE Q4 2018
Houston’s office market closes out 2018 with positive net absorption
Lisa Bridges Director of Market Research | Houston
Houston’s office market continues to take baby steps towards filling vacant space emptied during the energy downturn. In Q4 2018, the market posted positive absorption of 1.9 million SF, a substantial Market Indicators Annual Quarterly Quarterly increase from the negative 0.4 million SF of absorption recorded Relative to prior period Change Change Forecast* one year ago. Leasing activity remained steady over the quarter at VACANCY 3.5M SF pushing the year-end total to 14M SF. Houston’s overall vacancy rate fell slightly from 20.6% to 20.0% over the quarter, NET ABSORPTION but it is still well above Houston’s 5-year average vacancy rate of NEW CONSTRUCTION 16.4%. UNDER CONSTRUCTION Construction activity decreased in Q4 2018 from 3.2M SF to 2.5M SF as several new buildings were delivered. HP’s and ABS’s new *Projected CityPlace buildings in The Woodlands submarket delivered during Q4 2018.
Houston’s job growth increased by 3.7% over the year, according to recent data released by the US Bureau of Labor Statistics. The Houston MSA created 114,400 jobs (not seasonally adjusted) between November 2017 and November 2018, growing faster than Summary Statistics the U.S. during the same time period. Employment sectors with the Houston Office Market Q4 2017 Q3 2018 Q4 2018 most substantial growth include support activities for mining which Vacancy Rate 19.9% 20.6% 20.0% grew by 11.7% over the year, construction increased by 10.8% and durable goods manufacturing was up by 9.0% over the year. Net Absorption (Million Square Feet) -0.4 0.6 1.9 New Construction (Million Square Feet) 0.6 0.1 0.8
Under Construction (Million Square Feet) 2.0 3.2 2.5
Class A Vacancy Rate CBD 19.0% 19.7% 19.0% Suburban 22.2% 22.7% 21.7%
Asking Rents Per Square Foot Per Year
Houston Class A $35.08 $34.50 $34.43 CBD Class A $44.58 $45.28 $44.30 Suburban Class A $32.43 $31.37 $31.64
Share or view online at colliers.com/houston Vacancy & Availability Job Growth & Unemployment (not seasonally adjusted) Houston’s citywide vacancy rate decreased 60 basis points from 20.6% to 20.0% over the quarter. The average suburban vacancy rate also decreased 60 basis UNEMPLOYMENT 11/17 11/18 points from 20.3% to 19.7%, and the average CBD vacancy rate fell 40 basis points from 21.7% to 21.3% between quarters. HOUSTON 4.4% 3.8%
The average Class A vacancy rate in the CBD dropped 70 basis points over the TEXAS 3.8% 3.5% quarter from 19.7% to 19.0% and the average Class B vacancy rate in the CBD U.S. 3.9% 3.5% remained stable at 30.1%. The average suburban Class A vacancy rate decreased 100 basis points from 22.7% to 21.7% between quarters, while the average suburban Class B vacancy decreased 30 basis points from 18.7% to 18.4%. Annual # of Jobs JOB GROWTH Change Added
Of the 1,734 existing office buildings in our survey, 79 buildings have 100,000 SF HOUSTON 3.7% 114.4K or more contiguous space available for lease or sublease. Of these, 26 buildings 3.9% 360.0K have 200,000 SF or more contiguous space available. Citywide, available TEXAS sublease space decreased over the quarter from 8.9 million SF to 8.0 million U.S. 1.7% 2.5M SF. Available space differs from vacant space in that it includes space that is currently being marketed for lease but may be occupied with a future availability date. In contrast, vacant space is truly vacant and is immediately available. CBD vs. Suburban CLASS A OFFICE VACANCY
HISTORICAL AVAILABLE SUBLEASE SPACE 25.0%
14,000,000
12,000,000 20.0%
10,000,000
8,000,000 15.0% 6,000,000
4,000,000 10.0% 2,000,000
0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 5.0%
Class A Class B Houston Total
0.0%
AVAILABLE SUBLEASE SPACE - 125,000 SF OR GREATER CBD Vacancy Suburban Vacancy
(Total available in building and/or complex) Large Sublease Availabilities CLASS A OFFICE RENTS
BUILDING TENANT SUBMARKET SF $50.00
5 Greenway Plaza Oxy Greenway Plaza 746,070 $45.00 Four WestLake Park BP Katy Freeway 454,487 $40.00 Energy Tower II KTI Corporation (Technip) Katy Freeway 297,919 $35.00 NRG Tower Reliant Energy Retail CBD 262,325 $30.00 One Shell Plaza Shell Oil CBD 252,075 $25.00 Three WestLake Park Phillips 66 Katy Freeway 221,723 $20.00 Hess Tower Hess Corporation CBD 215,887 $15.00 1100 Louisiana Enbridge CBD 202,680 $10.00 10777 Clay Rd AMEC Foster Wheeler Katy Freeway 189,285 $5.00 Westway III GE Oil & Gas West Belt 182,004 $0.00 1001 Louisiana St EP Energy Corporation CBD 124,600 Source: CoStar
CBD Rents Suburban Rents
2 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Absorption & Demand
Houston’s office market posted 1.9M SF of positive net absorption in Q4 2018. Suburban Class A space recorded the largest gain, posting 1.4M SF of positive net absorption. A few of the tenants that relocated during the forth quarter include ConocoPhillips (moving into 597,600 SF in Energy Center IV in the Katy Freeway submarket), MidCoast Energy Partners (moving into 61,600 SF in Hess Tower in the CBD submarket) and Sheridan Production Co LLC (occupying 59,075 SF in Four Oaks Place located in the West Loop/Galleria submarket).
Rental Rates
Houston’s average asking rental rate remained relatively steady over the quarter, decreasing from $29.06 per SF to $29.04 per SF. The Class A average asking rental rate decreased over the quarter from $34.50 per SF to $34.43 per SF, as did the average CBD Class A rental rate which fell from $45.28 to $44.30 per SF. In contrast, the Suburban Class A average asking rental rate increased from $31.37 to $31.64 per SF.
Leasing Activity
Houston’s office leasing activity decreased 2.8% over the quarter from 3.6M SF to 3.5M SF. 2018 leasing activity totaled 14M SF. Leasing activity includes new/direct, sublet, renewals/expansions in existing buildings, and pre-leasing in proposed buildings. Some of the more notable transactions are noted in the table below.
Q4 2018 Select Office Lease Transactions BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE Energy Center Five Katy Freeway 524,300 McDermott International1 Nov-18 Enclave Place Katy Freeway 300,900 Transocean1,4 Oct-18 Capitol Tower CBD 284,300 Waste Management1,4 Nov-18 Kirby Collection Greenway Plaza 97,700 PROS, Inc.1 Nov-18 Lake Front North The Woodlands 87,200 Arena Energy1,3 Nov-18 San Felipe Plaza San Felipe/Voss 76,000 Encino Energy LLP1 Nov-18 Hess Tower CBD 61,700 MidCoast Energy Partners2 Nov-18 The Offices at Park 10 Phase II Katy Freeway 23,200 Olin Corporation1,3 Oct-18
1New/Direct 3Colliers International Transaction 2Sublease 4Pre-lease in proposed/under construction
Sales Activity
Houston’s office investment sales decreased over the year by 20.0% to $172 per SF from $215 per SF in Q4 2017. The average sales price per square foot trended down from $195 to $172 per SF over the quarter. Houston’s average cap rate of 7.2% is above the average U.S. cap rate of 6.5%.
AVERAGE OFFICE SALES PRICE PER SF AVERAGE OFFICE CAP RATE
US Average Price per SF Houston Average Price per SF Houston Average Cap Rate US Average Cap Rate
$300 9.0%
$250 8.5%
$200 8.0%
$150 7.5%
$100 7.0%
$50 6.5%
$0 6.0%
Sources: CoStar and Real Capital Analytics
3 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Houston Office Market Summary (CBD, Suburban, & Overall)
SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE
# OF RATE RATE TOTAL AVG CLASS TOTAL (SF) (SF) (SF) Q4-2018 Q3-2018 Q4-2018 Q3-2018 BLDGS. (%) (%) (SF) ($/SF) CBD A 34 32,511,547 5,246,525 16.1% 935,720 2.9% 6,182,245 19.0% 19.7% 237,972 -19,443 $44.30 B 30 9,916,895 2,916,163 29.4% 68,873 0.7% 2,985,036 30.1% 30.1% -237 143,733 $30.12 C 13 900,419 76,500 8.5% 0 0.0% 76,500 8.5% 8.5% 0 0 $19.99 Total 77 43,328,861 8,239,188 19.0% 1,004,593 2.3% 9,243,781 21.3% 21.7% 237,735 124,290 $39.06 SUBURBAN A 409 100,311,377 18,587,597 18.5% 3,225,804 3.2% 21,813,401 21.7% 22.7% 1,452,762 348,551 $31.64 B 957 78,643,262 13,913,522 17.7% 543,622 0.7% 14,457,144 18.4% 18.7% 211,716 131,460 $20.75 C 291 12,260,865 1,328,426 10.8% 20,353 0.2% 1,348,779 11.0% 11.2% 19,323 40,633 $17.47 Total 1657 191,215,504 33,829,545 17.7% 3,789,779 2.0% 37,619,324 19.7% 22.1% 1,683,801 520,644 $26.61 OVERALL A 443 132,822,924 23,834,122 17.9% 4,161,524 3.1% 27,995,646 21.1% 19.9% 1,690,734 329,108 $34.43 B 987 88,560,157 16,829,685 19.0% 612,495 0.7% 17,442,180 19.7% 18.6% 211,479 275,193 $22.37 C 304 13,161,284 1,404,926 10.7% 20,353 0.2% 1,425,279 10.8% 11.0% 19,323 40,633 $17.60 Total 1734 234,544,365 42,068,733 17.9% 4,794,372 2.0% 46,863,105 20.0% 20.6% 1,921,536 644,934 $29.04
Houston Suburban Office Market Summary
SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE
# OF RATE RATE TOTAL AVG CLASS TOTAL (SF) (SF) (SF) Q4-2018 Q3-2018 Q4-2018 Q3-2018 BLDGS. (%) (%) (SF) ($/SF) ALLEN PARKWAY (MIDTOWN) A 8 2,284,619 364,673 16.0% 2,459 0.1% 367,132 16.1% 16.3% 4,903 -5,377 $32.52 B 34 2,450,022 237,594 9.7% 6,637 0.3% 244,231 10.0% 9.6% -8,465 -23,293 $28.84 C 13 402,988 102,926 25.5% 0 0.0% 102,926 25.5% 25.8% 1,100 -3,621 $27.00 Total 55 5,137,629 705,193 13.7% 9,096 0.2% 714,289 13.9% 12.8% -2,462 -32,291 $30.47 BAYTOWN B 3 186,005 8,540 4.6% 0 0.0% 8,540 4.6% 4.6% 0 0 $21.45 C 3 81,481 2,500 3.1% 0 0.0% 2,500 3.1% 3.1% 0 0 - Total 6 267,486 11,040 4.1% 0 0.0% 11,040 4.1% 4.1% 0 0 $16.59 BELLAIRE A 7 1,375,713 124,875 9.1% 45,720 3.3% 170,595 12.4% 11.6% -11,040 48,309 $29.25 B 19 2,451,213 573,872 23.4% 19,210 0.8% 593,082 24.2% 24.3% 2,916 -2,095 $20.54 C 6 344,785 36,571 10.6% 0 0.0% 36,571 10.6% 10.0% -2,053 658 $17.65 Total 32 4,171,711 735,318 17.6% 64,930 1.6% 800,248 19.2% 8.4% -10,177 46,872 $21.88 CONROE AND OUTLYING MONTGOMERY CO A 2 88,449 28,449 32.2% 0 0.0% 28,449 32.2% 32.2% 0 0 $23.53 B 9 368,376 1,474 0.4% 0 0.0% 1,474 0.4% 0.4% 0 1,345 $18.00 C 7 287,369 17,855 6.2% 0 0.0% 17,855 6.2% 5.1% -3,087 -4,636 $16.39 Total 18 744,194 47,778 6.4% 0 0.0% 47,778 6.4% 1.8% -3,087 -3,291 $20.69 E. FORT BEND CO SUGAR LAND A 17 3,399,208 185,400 5.5% 103,511 3.0% 288,911 8.5% 10.3% 60,205 13,147 $31.85 B 40 2,411,540 338,414 14.0% 3,984 0.2% 342,398 14.2% 12.2% -49,192 67,646 $23.45 C 5 146,524 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 $13.02 Total 62 5,957,272 523,814 8.8% 107,495 1.8% 631,309 10.6% 10.3% 11,013 80,793 $26.42
4 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Houston Suburban Office Market Summary - Continued
SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE
# OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q4-2018 Q3-2018 Q4-2018 Q3-2018 BLDGS. (SF) (%) (%) (SF) ($/SF) FM 1960 A 13 2,968,954 379,329 12.8% 12,512 0.4% 391,841 13.2% 13.4% 7,162 -22,834 $28.26 B 70 4,342,065 795,824 18.3% 48,210 1.1% 844,034 19.4% 19.4% -2,632 19,808 $16.37 C 23 805,296 97,149 12.1% 0 0.0% 97,149 12.1% 13.6% 12,243 13,448 $14.47 Total 106 8,116,315 1,272,302 15.7% 60,722 0.7% 1,333,024 16.4% 16.8% 16,773 10,422 $19.77 GREENWAY PLAZA A 21 7,429,743 1,317,897 17.7% 70,952 1.0% 1,388,849 18.7% 18.7% 1,180 57,979 $36.26 B 31 3,103,161 283,727 9.1% 1,675 0.1% 285,402 9.2% 12.0% 86,933 14,983 $26.86 C 13 433,479 34,203 7.9% 0 0.0% 34,203 7.9% 8.2% 1,357 13,549 $22.16 Total 65 10,966,383 1,635,827 14.9% 72,627 0.7% 1,708,454 15.6% 17.5% 89,470 86,511 $34.33 GULF FREEWAY PASADENA A 2 105,782 29,975 28.3% 0 0.0% 29,975 28.3% 28.3% 0 0 - B 44 2,487,156 231,163 9.3% 10,555 0.4% 241,718 9.7% 10.9% 28,710 37,743 $21.96 C 26 982,194 131,625 13.4% 0 0.0% 131,625 13.4% 10.7% -26,740 528 $23.35 Total 72 3,575,132 392,763 11.0% 10,555 0.3% 403,318 11.3% 14.6% 1,970 38,271 $20.75 I-10 EAST B 6 427,851 63,335 14.8% 0 0.0% 63,335 14.8% 17.4% 11,181 22,668 $17.17 C 6 266,929 0 0.0% 0 0.0% 0 0.0% 4.9% 13,000 0 - Total 12 694,780 63,335 9.1% 0 0.0% 63,335 9.1% 16.3% 24,181 22,668 $17.17 KATY FREEWAY A 95 23,278,021 3,575,765 15.4% 1,497,131 6.4% 5,072,896 21.8% 24.8% 703,436 122,403 $36.55 B 101 9,261,588 1,984,531 21.4% 142,977 1.5% 2,127,508 23.0% 23.4% 36,609 30,961 $22.26 C 29 1,363,282 109,791 8.1% 4,596 0.3% 114,387 8.4% 8.7% 4,517 -5,439 $19.87 Total 225 33,902,891 5,670,087 16.7% 1,644,704 4.9% 7,314,791 21.6% 22.0% 744,562 147,925 $31.23 KATY GRAND PARKWAY A 17 1,629,940 224,903 13.8% 8,302 0.5% 233,205 14.3% 16.8% 40,482 39,004 $27.83 B 16 1,042,144 30,607 2.9% 0 0.0% 30,607 2.9% 2.4% -5,143 -2,465 $21.74 C 2 149,262 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 35 2,821,346 255,510 9.1% 8,302 0.3% 263,812 9.4% 10.1% 35,339 36,539 $27.10 KINGWOOD HUMBLE B 19 1,285,693 72,357 5.6% 100 0.0% 72,457 5.6% 6.9% 15,896 -7,242 $21.61 C 5 159,105 12,903 8.1% 0 0.0% 12,903 8.1% 8.1% -25 800 $18.16 Total 24 1,444,798 85,260 5.9% 100 0.0% 85,360 5.9% 6.2% 15,871 -6,442 $21.09 NASA CLEAR LAKE A 12 1,778,721 187,603 10.5% 2,390 0.1% 189,993 10.7% 9.6% -18,894 -5,116 $26.21 B 46 3,060,111 856,440 28.0% 0 0.0% 856,440 28.0% 27.6% -12,166 4,699 $20.22 C 17 511,488 66,597 13.0% 0 0.0% 66,597 13.0% 14.7% 8,694 -4,849 $16.98 Total 75 5,350,320 1,110,640 20.8% 2,390 0.0% 1,113,030 20.8% 22.9% -22,366 -5,266 $21.04 NORTH BELT GREENSPOINT A 25 5,522,618 3,338,681 60.5% 34,914 0.6% 3,373,595 61.1% 62.3% 64,775 -9,176 $22.11 B 58 5,938,207 1,868,509 31.5% 28,157 0.5% 1,896,666 31.9% 32.1% 8,007 36,773 $15.75 C 22 1,433,108 248,786 17.4% 2,757 0.2% 251,543 17.6% 15.6% -27,360 39,573 $12.68 Total 105 12,893,933 5,455,976 42.3% 65,828 0.5% 5,521,804 42.8% 44.3% 45,422 67,170 $19.50 NORTHEAST NEAR AND OUTLIER A 3 642,223 21,702 3.4% 0 0.0% 21,702 3.4% 3.4% 0 0 - B 6 243,799 41,938 17.2% 8,000 3.3% 49,938 20.5% 14.2% -15,430 -9,146 $21.69 C 2 56,562 15,843 28.0% 0 0.0% 15,843 28.0% 21.3% -3,808 -1,819 $15.00 Total 11 942,584 79,483 8.4% 8,000 0.8% 87,483 9.3% 6.3% -19,238 -10,965 $14.43
5 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Houston Suburban Office Market Summary - Continued
SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE
# OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q4-2018 Q3-2018 Q4-2018 Q3-2018 BLDGS. (SF) (%) (%) (SF) ($/SF) NORTHWEST AND NORTHWEST OUTLIER A 9 1,985,781 838,144 42.2% 1,203 0.1% 839,347 42.3% 42.8% 10,516 -116,461 $22.85 B 73 5,837,020 905,020 15.5% 1,705 0.0% 906,725 15.5% 16.0% 29,489 74,951 $18.75 C 33 1,310,096 100,662 7.7% 3000 0.2% 103,662 7.9% 8.2% 3,250 -9,144 $17.27 Total 115 9,132,897 1,843,826 20.2% 5,908 0.1% 1,849,734 20.3% 20.0% 43,255 -50,654 $20.53 RICHMOND FOUNTAINVIEW B 15 916,446 91,039 9.9% 0 0.0% 91,039 9.9% 12.8% 26,003 14,736 $17.00 C 10 392,300 26,855 6.8% 0 0.0% 26,855 6.8% 8.2% 5,180 -804 $17.48 Total 25 1,308,746 117,894 9.0% 0 0.0% 117,894 9.0% 12.7% 31,183 13,932 $17.11 SAN FELIPE VOSS A 3 1,720,793 484,127 28.1% 20,779 1.2% 504,906 29.3% 28.8% -8,726 -20,000 $36.15 B 30 3,162,310 603,660 19.1% 19,538 0.6% 623,198 19.7% 18.9% -26,201 -2,191 $25.34 Total 33 4,883,103 1,087,787 22.3% 40,317 0.8% 1,128,104 23.1% 22.0% -34,927 -22,191 $30.15 SOUTH A 1 80,000 9,307 11.6% 0 0.0% 9,307 11.6% 11.6% 0 0 $30.88 B 12 358,303 24,304 6.8% 0 0.0% 24,304 6.8% 7.2% 1,525 4,466 $24.37 C 5 195,387 26,100 13.4% 0 0.0% 26,100 13.4% 13.4% 0 -15,400 $18.94 Total 18 633,690 59,711 9.4% 0 0.0% 59,711 9.4% 8.0% 1,525 -10,934 $23.01 SOUTH MAIN MEDICAL CENTER B 12 829,793 91,588 11.0% 0 0.0% 91,588 11.0% 11.3% 2,581 12,071 $18.42 C 7 286,418 59,339 20.7% 0 0.0% 59,339 20.7% 20.8% 156 1,458 $19.61 Total 19 1,116,211 150,927 13.5% 0 0.0% 150,927 13.5% 9.7% 2,737 13,529 $18.89 SOUTHEAST B 17 1,271,884 79,006 6.2% 0 0.0% 79,006 6.2% 6.7% 5,903 27,300 $17.77 C 2 118,209 0 0.0% 0 0.0% 0 0.0% 0.0% 0 0 - Total 19 1,390,093 79,006 5.7% 0 0.0% 79,006 5.7% 8.1% 5,903 27,300 $17.77 SOUTHWEST A 6 1,580,642 427,171 27.0% 0 0.0% 427,171 27.0% 24.7% -36,161 -7,144 $19.11 B 63 6,033,077 1,358,358 22.5% 63,512 1.1% 1,421,870 23.6% 21.8% -105,686 -35,903 $17.29 C 34 1,805,477 210,860 11.7% 0 0.0% 210,860 11.7% 14.1% 44,366 -3,009 $14.47 Total 103 9,419,196 1,996,389 21.2% 63,512 0.7% 2,059,901 21.9% 19.3% -97,481 -46,056 $17.38 SOUTHWEST FAR AND OUTLIER A 2 158,720 19,737 12.4% 0 0.0% 19,737 12.4% 12.4% 0 0 - B 12 925,976 212,381 22.9% 0 0.0% 212,381 22.9% 25.2% 20,954 0 $22.95 C 3 91,661 7,000 7.6% 0 0.0% 7,000 7.6% 7.6% 0 1,000 $15.60 Total 17 1,176,357 239,118 20.3% 0 0.0% 239,118 20.3% 22.9% 20,954 1,000 $20.38 WEST BELT A 29 3,730,831 803,075 21.5% 228,288 6.1% 1,031,363 27.6% 28.4% 29,414 176,413 $29.18 B 37 2,106,925 340,065 16.1% 75,954 3.6% 416,019 19.7% 21.0% 25,548 4,368 $19.72 C 4 112,629 0 0.0% 10000 8.9% 10,000 8.9% 0.0% -10,000 0 - Total 70 5,950,385 1,143,140 19.2% 314,242 5.3% 1,457,382 24.5% 28.8% 44,962 180,781 $26.37 WEST LOOP A 50 17,965,285 2,971,078 16.5% 415,521 2.3% 3,386,599 18.9% 20.1% 220,069 116,479 $37.36 B 53 6,032,050 904,097 15.0% 67,352 1.1% 971,449 16.1% 16.6% 28,802 -70,960 $27.43 C 4 216,268 7,518 3.5% 0 0.0% 7,518 3.5% 1.4% -4,575 -758 $21.53 Total 107 24,213,603 3,882,693 16.0% 482,873 2.0% 4,365,566 18.0% 18.9% 244,296 44,761 $35.02
6 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Houston Suburban Office Market Summary - Continued
SUBLEASE NET ABSORPTION RENTAL INVENTORY DIRECT VACANCY VACANCY VACANCY RATE (%) VACANCY (SF) RATE
# OF TOTAL RATE RATE TOTAL AVG CLASS (SF) (SF) Q4-2018 Q3-2018 Q4-2018 Q3-2018 BLDGS. (SF) (%) (%) (SF) ($/SF) WESTCHASE A 34 10,002,462 1,950,569 19.5% 714,323 7.1% 2,664,892 26.6% 26.2% -39,781 -92,441 $34.61 B 62 7,616,602 1,489,123 19.6% 33,164 0.4% 1,522,287 20.0% 21.9% 148,640 -142,266 $22.32 C 5 176,872 10,193 5.8% 0 0.0% 10,193 5.8% 5.8% 0 0 $15.00 Total 101 17,795,936 3,449,885 19.4% 747,487 4.2% 4,197,372 23.6% 19.8% 108,859 -234,707 $29.25 THE WOODLANDS A 53 12,582,872 1,305,137 10.4% 67,799 0.5% 1,372,936 10.9% 9.2% 425,222 53,366 $34.34 B 69 4,493,945 426,556 9.5% 12,892 0.3% 439,448 9.8% 8.8% -43,066 52,503 $24.53 C 5 131,696 3,150 2.4% 0 0.0% 3,150 2.4% 4.8% 3,108 19,098 $24.65 Total 127 17,208,513 1,734,843 10.1% 80,691 0.5% 1,815,534 10.6% 9.2% 385,264 124,967 $31.91
Office Development Pipeline
2.5 million SF of office space is under construction and 46.7% is pre-leased. Build-to-suit projects make up 6% of the space under construction and the remaining 94% is spec office space, of which 49.5% is pre-leased. Build-to-suit projects for ABS and HP in the CityPlace Development in The Woodlands submarket delivered during the fourth quarter, adding 704,800 SF to existing inventory. The table below includes office buildings under construction with a RBA of 100,000 SF or more.
PRE- EST. BUILDING NAME ADDRESS SUBMARKET SF DEVELOPER/CONTRACTOR LEASED DELIVERY 801 Texas 801 Texas Ave CBD 1,110,220 32.8% Hines Securities, Inc. Oct-21 Capitol Tower 800 Capitol St CBD 778,344 81.0% SCD Acquisitions LLC Jun-19 Chasewood Crossing Three 19350 State Highway 249 FM 1960 156,000 0% Greenwood Properties Sep-19 CityPlace 1 1700 City Plaza Dr The Woodlands 149,500 18.0% Patrinely Group, Inc Apr-19 600 N Shepherd Dr 600 N Shepherd Dr North Loop West 100,000 8.5% Triten Real Estate Partners Jan-20
Skylines | Now Available Online at colliers.com/houston
A skyline view of available space for nine of Houston’s Class A office submarkets including CBD, Galleria, Energy Corridor, Greenway Plaza, NASA/Clear Lake, North Belt, Sugar Land, The Woodlands and Westchase, is now available online.
75 CLASS A OFFICE BUILDINGS 75 CLASS A OFFICE BUILDINGS
70 CENTRAL BUSINESS DISTRICT HOUSTON, TEXAS 70 CENTRAL BUSINESS DISTRICT HOUSTON, TEXAS DECEMBER 2018 65 65 DECEMBER 2018 AVAILABLE* SUBLEASE* AVAILABLE* SUBLEASE* 60 60
55 55
50 50
45 45 2 40 40 19 3 6 35 35 1 7 8 20 4 5 30 30 21 25 22 9 25 25 18 23 26 17 14 10 11 12 30 24 16 20 20 32 33 15 15 15 31 Available June 2019 27 147,790 SF 13 10 10 29 5 5 28
1 2 3 4 PENNZOIL PLACE 5 6 7 8 9 10 11 12 13 27 28 29 30 31 32 33 BUILDING NAME 717 TEXAS 600 TRAVIS BANK OF AMERICA CENTER NORTH BLDG SOUTH BLDG 811 LOUISIANA ONE SHELL PLAZA 609 MAIN at TEXAS BG GROUP PLACE 2 HOUSTON CENTER LYONDELLBASELL TOWER FULBRIGHT TOWER 5 HOUSTON CENTER BUILDING NAME HESS TOWER NRG TOWER 1301 FANNIN OFFICE TOWER 1400 SMITH WEDGE INT’L TOWER 1600 SMITH 1500 LOUISIANA ADDRESS 717 Texas Avenue 600 Travis Street 700 Louisiana Street 700 Milam Street 711 Louisiana Street 811 Louisiana Street 910 Louisiana Street 609 Main Street 811 Main Street 909 Fannin Street 1221 McKinney Street 1301 McKinney Street 1401 McKinney Street ADDRESS 1501 McKinney Street 1201 Fannin Street 1301 Fannin Street 1400 Smith Street 1415 Louisiana Street 1600 Smith Street 1500 Louisiana Street RBA / AVG FLOOR / # OF FLOORS 696,228 / 27,500 / 33 1,656,529 / 22,575 / 75 1,268,480 / 25,000 / 56 679,337 / 20,523 / 36 664,940 / 20,000 / 34 588,423 / 31,500 / 26 1,228,923 / 24,572 / 50 1,056,658 / 28,000 / 48 972,474 / 27,000 / 46 1,024,956 / 25,624 / 40 1,061,351 / 23,500 / 46 1,247,061 / 24,452 / 51 580,875 / 29,649 / 27 RBA / AVG FLOOR / # OF FLOORS 844,763 / 30,500 /29 275,223 / 25,020 / 11 784,143 / 26,000 / 24 1,266,714 / 24,578 / 50 520,475 / 18,000 / 43 1,098,399 / 23,000 /51 1,157,690 / 25,263 / 40 % LEASED 47.7% 83.7% 90.0% 60.9% 78.4% 52.9% 88.7% 69.0% 92.0% 51.9% 90.8% 75.4% 91.6% % LEASED 100% 100% 89.1% 100% 48.5% 53.8% 100% TOTAL AVAILABLE SF 355,908 520,774 396,383 252,713 265,203 274,524 400,868 317,135 77,420 510,553 100,794 416,858 191,972 TOTAL AVAILABLE SF 215,887 262,325 126,287 0 283,042 508,039 0 MAX CONTIGUOUS SF 355,908 213,678 86,435 142,954 102,136 220,529 158,813 255,911 53,435 309,966 24,301 75,376 147,790 MAX CONTIGUOUS SF 215,887 262,325 52,544 0 61,186 280,593 0 QUOTED RATE** $45.75 $43.40 $44.49 $44.99 $44.99 $41.93 $45.24 $52.00 $51.91 $43.75 $44.20 $45.18 $49.75 QUOTED RATE** N/A N/A $38.63 N/A $33.07 $37.97 N/A 3.0 3.0 2.0 0.3 1.7 1.2 1.0 1.0 1.0 2.0 PARKING RATIO 1.3 1.0 2.0 PARKING RATIO 1.7 1.5 1.0 N/A 2.7 1.0 1.1 Metropolis Investment Metropolis Investment Busycon Properties LLC Busycon Properties LLC Hines NPS Brookeld Asset Brookeld Asset Brookeld Asset Spear Street Capital OWNER Hines Texas Tower Ltd M-M Properties OWNER H&R REIT Midway Companies/ Netrality Properties Chevron Corporation Wedge Commercial Oracle Corporation ChevronTexaco Corp. Holdings Inc. Holdings Inc. Management Inc. Management Inc. Management Inc. Lionstone Investments Properties 75
70
65
60
55
Available Sublease Space Available Direct Space 50 a ab e Sub ease S a e Q4 2018 a ab e D re t S a e C ass Renta Rate an a an er enta e Q4 2018 Centra Bus ness D str t ust n Centra Bus ness D str t Class A: 1,551,3544 SF or 4.5% Centra Bus ness D str t 45 Class A: 8,627,277 SF or 25.1% CBD C ass Rents CBD C ass a an Class B: 308,348 SF or 3.1% Class B: 2,996,457 SF or 30.2% $4 .00 22.0 C ass C ass B C ass C ass B 40 $4 .00 2,500,000 20.0 $44.00 9,000,000 $42.00 1 .0 35 8,000,000 2,000,000 $40.00 354,330 SF 7,000,000 $3 .00 1 .0 30 $3 .00 Available 6,000,000 14.0 1,500,000 $34.00 5,000,000 25 Nov 2021 $32.00 12.0 4,000,000 $30.00 1,000,000 $2 .00 10.0 3,000,000 20 $2 .00 .0 2,000,000 $24.00 500,000 $22.00 .0 15 1,000,000 0 10 203,083 SF 0 5 Available a an er enta e n u es re t an sub ease s a e. Jan 2021
14 15 16 17 18 19 20 21 22 23 24 25 26 BUILDING NAME 1001 FANNIN ONE CITY CENTRE HILCORP ENERGY TOWER 1000 MAIN KINDER MORGAN BLDG. WELLS FARGO PLAZA HERITAGE PLAZA 1100 LOUISIANA CENTERPOINT ENERGY ONE ALLEN CENTER TOTAL PLAZA THREE ALLEN CENTER TWO ALLEN CENTER ADDRESS 1001 Fannin Street 1021 Main Street 1111 Main Street 1000 Main Street 1001 Louisiana Street 1000 Louisiana Street 1111 Bagby Street 1100 Louisiana Street 1111 Louisiana Street 500 Dallas Street 1201 Louisiana Street 333 Clay Street 1200 Smith Street RBA / AVG FLOOR / # OF FLOORS 1,385,212 / 27,210 / 49 608,660 / 21,266 / 29 406,600 / 17,678 / 23 837,161 / 23,333 / 36 937,003 / 28,510 / 32 1,721,242 / 25,000 / 71 1,212,895 / 26,652 / 51 1,327,882 / 23,060 / 55 1,081,251 / 22,968 / 47 993,297 / 29,214 / 34 843,533 / 24,600 / 35 1,194,719 / 25,000 /50 995,623 / 26,613 / 36 % LEASED 96.6% 75.7% 95.7% 80.7% 100% 78.6% 99.4% 99.4% 100% 83.5% 99.0% 88.6% 90.1% TOTAL AVAILABLE SF 596,939 425,326 0 175,321 124,600 483,858 36,355 299,435 0 199,261 29,403 253,818 433,608 *Gold and white indicators are approximate only at the time of printing and are presented to show approximate percentage of available MAX CONTIGUOUS SF 354,330 203,083 0 144,394 124,600 101,773 36,355 202,680 0 70,171 7,272 48,560 171,358 space by oor/building. All indicators are left-to-right and are not meant to show location of available space. COLLIERS INTERNATIONAL QUOTED RATE** $44.51 $30.09 N/A $52.06 N/A $49.15 $51.06 $45.00 N/A $46.53 $39.80 $46.48 $45.58 PARKING RATIO 1.0 2.3 N/A 2.0 1.0 1.7 2.4 1.8 2.5 1.0 1.0 1.0 1.0 **Rental rates listed are net + operating expenses. 1233 West Loop South, Suite 900 OWNER JMB Financial Advisors Accesso Partners, LLC Hilcorp Ventures Inc. Union Investment EPEC Property Holdings Clarion Partners on Brookeld Oce Enterprise Products CenterPoint Energy, Inc. Brookeld Oce Brookeld Oce Brookeld Oce Brookeld Oce Houston, TX 77027 Real Estate behalf of New York State Properties, Inc. Partners L.P. Properties, Inc. Properties, Inc. Properties, Inc. Properties, Inc. Common Retirement Fund www.colliers.com/texas
7 Houston Research & Forecast Report | Q4 2018 | Office | Colliers International Quoted gross rental rates for existing top performing office buildings YEAR % AVAIL. RENT BUILDING NAME ADDRESS SUBMARKET RBA (SF) OWNER BUILT LEASED SF ($/SF) BG Group Place 811 Main St CBD 972,474 2011 92.0% 77,420 $51.91 BG Holdco LLC 1000 Main 1000 Main St CBD 837,161 2003 80.7% 175,321 $52.06 HRO International, Ltd Kirby Grove 2925 Richmond Ave Greenway Plaza 248,275 2015 85.7% 53,865 $47.33 Midway Companies CityCentre Two 818 Town & Country Blvd Katy Freeway 149,827 2009 99.1% 78,846 $50.04 Midway Cc15 Partners Town Centre One 750 Town & Country Blvd Katy Freeway 253,714 2015 85.2% 37,451 $43.09 Moody Rambin 6 BLVD Place 1800 Post Oak Blvd West Loop/Galleria 70,131 2009 93.9% 9479 $45.55 Wulfe & Co. Williams Tower 2800 Post Oak Blvd West Loop/Galleria 1,476,973 1983 92.7% 204,043 $46.42- Invesco Advisors, Inc. $49.42 One BriarLake Plaza 2000 W Sam Houston Westchase 502,410 1999 90.1% 200,586 $45.29 TIER REIT, Inc. Pky S Two Hughes Landing 1790 Hughes Landing Blvd The Woodlands 197,696 2014 95.5% 13,899 $44.47- The Woodlands Development $50.47 Company, L.P. Note: Available SF includes direct and sublet space as well as any future available space currently listed. Source: CoStar Property
Q4 2018 Houston Office Highlights
FOR MORE INFORMATION Lisa Bridges, CPRC Beth Staggs CPRC, CPMC Colliers statistical criteria Director of Market Research | Houston Research Coordinator | Houston includes all general purpose multi +1 713 830 2125 +1 713 830 2130 and single tenant office buildings [email protected] [email protected] 20,000 SF or greater.
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