Houston
Content
Houston
Up 2 Places
2012 Rank: 3
2011 Rank: 5
Employment Trends
8%
Year-over-Year Change Nonfarm Office-Using
4% 0% -4% -8%
08
09
10
11
12*
Office Supply and Demand
6
Square Feet (millions) Completions Absorption Vacancy
16% 15%
Vacancy Rate
3 0 -3 -6
he resurgence of Houston’s energy industry will support significant improvements in local office operations and foster one of the lowest vacancy rates in the country. Class A space in primary submarkets, including the CBD and Energy Corridor, will be the major beneficiaries of expansion among energy companies. Major companies such as Shell Oil Co., Chevron and Carrizo Oil & Gas have committed to nearly 1.9 million square feet of space in the CBD. In the Katy Freeway/Energy Corridor submarket, BP and SM Energy also expanded their footprints, pushing submarket vacancy to the lowest level since 2009. The oil and gas boom has also bolstered office operations in support industries. Tech companies that sustain the energy industry, such as Schlumberger Ltd. and Aker, will play a key role in expanding the office market recovery into secondary areas and the lower tiers. Greenspoint, however, will struggle to recover from the 2 million square feet that ExxonMobil will vacate when its corporate headquarters is completed just south of The Woodlands. REITs and institutional investors will remain dominant figures in the Houston office market, due to a favorable economic outlook and limited perceived risk. Foreign investors, particularly Canadians, are also searching for quality properties, accounting for nearly 30 percent of the institutional-grade deals in 2011. This focus on quality will likely surge as investors recognize the growing trend of tenants upgrading their workspace, especially in the CBD and Energy Corridor. In secondary office districts, smaller, local investors will re-emerge in larger numbers, lifting the volume of lower-tier transactions. Cap rates for these type of transactions are typically in the mid-7 to low-8 percent range. 2012 Market Outlook
■
T
Healthy Energy Industry and Nation-Leading Job Growth Fuels Investment Surge
14% 13% 12%
08
09
10
11
12*
Rent Trends
Asking Rent Effective Rent
$26
Rent per Square Foot
$24 $22 $20 $18
2012 NOPI Rank: 3, Up 2 Places. Houston’s third-lowest vacancy and highest job growth projections facilitated a two-spot rise in the ranking. Employment Forecast: Employers in Houston will add 91,000 individuals to payrolls in 2012, at a 3.5 percent increase. More than 20,000 openings in this year’s job outlook are office-using positions. Construction Forecast: After 1.4 million square feet of space was added last year, developers will complete only 228,000 square feet in 2012. Vacancy Forecast: Vacancy will fall 180 basis points to 13 percent during 2012, following a 30-basis-point decline in 2011. Rent Forecast: Asking rents will edge higher to $25.11 per square foot this year as effective rents reach $21.32 per square foot, gains of 3.2 percent and 4.4 percent, respectively. Investment Forecast: While Houston office space remains a focus for institutional buyers, the medical office market will garner significant attention as well. Cap rates for these assets average in the low-8 percent range, with properties near the Texas Medical Center yielding 200 basis points lower.
Construction: 228K t Vacancy: 180 bps t Asking Rents: 3.2% s
■
08
09
10
11
12*
Sales Trends
$140
Median Price per Square Foot
■
■
$120 $100 $80 $60
■
■
07
08
09
10
11
* Forecast
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA
Market Forecast
page 24
Employment: 3.5% s
2012 BLACK TEXT VERSION Annual Report
Up 2 Places
2012 Rank: 3
2011 Rank: 5
Employment Trends
8%
Year-over-Year Change Nonfarm Office-Using
4% 0% -4% -8%
08
09
10
11
12*
Office Supply and Demand
6
Square Feet (millions) Completions Absorption Vacancy
16% 15%
Vacancy Rate
3 0 -3 -6
he resurgence of Houston’s energy industry will support significant improvements in local office operations and foster one of the lowest vacancy rates in the country. Class A space in primary submarkets, including the CBD and Energy Corridor, will be the major beneficiaries of expansion among energy companies. Major companies such as Shell Oil Co., Chevron and Carrizo Oil & Gas have committed to nearly 1.9 million square feet of space in the CBD. In the Katy Freeway/Energy Corridor submarket, BP and SM Energy also expanded their footprints, pushing submarket vacancy to the lowest level since 2009. The oil and gas boom has also bolstered office operations in support industries. Tech companies that sustain the energy industry, such as Schlumberger Ltd. and Aker, will play a key role in expanding the office market recovery into secondary areas and the lower tiers. Greenspoint, however, will struggle to recover from the 2 million square feet that ExxonMobil will vacate when its corporate headquarters is completed just south of The Woodlands. REITs and institutional investors will remain dominant figures in the Houston office market, due to a favorable economic outlook and limited perceived risk. Foreign investors, particularly Canadians, are also searching for quality properties, accounting for nearly 30 percent of the institutional-grade deals in 2011. This focus on quality will likely surge as investors recognize the growing trend of tenants upgrading their workspace, especially in the CBD and Energy Corridor. In secondary office districts, smaller, local investors will re-emerge in larger numbers, lifting the volume of lower-tier transactions. Cap rates for these type of transactions are typically in the mid-7 to low-8 percent range. 2012 Market Outlook
■
T
Healthy Energy Industry and Nation-Leading Job Growth Fuels Investment Surge
14% 13% 12%
08
09
10
11
12*
Rent Trends
Asking Rent Effective Rent
$26
Rent per Square Foot
$24 $22 $20 $18
2012 NOPI Rank: 3, Up 2 Places. Houston’s third-lowest vacancy and highest job growth projections facilitated a two-spot rise in the ranking. Employment Forecast: Employers in Houston will add 91,000 individuals to payrolls in 2012, at a 3.5 percent increase. More than 20,000 openings in this year’s job outlook are office-using positions. Construction Forecast: After 1.4 million square feet of space was added last year, developers will complete only 228,000 square feet in 2012. Vacancy Forecast: Vacancy will fall 180 basis points to 13 percent during 2012, following a 30-basis-point decline in 2011. Rent Forecast: Asking rents will edge higher to $25.11 per square foot this year as effective rents reach $21.32 per square foot, gains of 3.2 percent and 4.4 percent, respectively. Investment Forecast: While Houston office space remains a focus for institutional buyers, the medical office market will garner significant attention as well. Cap rates for these assets average in the low-8 percent range, with properties near the Texas Medical Center yielding 200 basis points lower.
Construction: 228K t Vacancy: 180 bps t Asking Rents: 3.2% s
■
08
09
10
11
12*
Sales Trends
$140
Median Price per Square Foot
■
■
$120 $100 $80 $60
■
■
07
08
09
10
11
* Forecast
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA
Market Forecast
page 24
Employment: 3.5% s
2012 BLACK TEXT VERSION Annual Report
