MARKETBEAT

OFFICE SNAPSHOT
HOUSTON, TX

Q3 2014

A Cushman & Wakefield Research Publication

ECONOMIC OVERVIEW
Projects currently under construction total 9.7 msf, the largest
number recorded in decades, and already 40.5% pre-leased.
Approximately 3.9 msf will be completed by the end of 2014, based
on projects already under construction or built. Another 9.4 msf are
projected in 2015, including all announced and under-construction
projects. Additionally, approximately 6.0 msf are under construction
as owner-occupied projects, with a heavy emphasis in energy-related
companies. With job growth projected to remain well above 2.0% for
the foreseeable future, Houston will continue to grow on all fronts.
STATS ON THE GO
Q3 2013

Q3 2014

Y-O-Y
CHANGE

12.9%

11.9%

-1.0pp

$23.47

$25.95

10.6%

13,382,794

8,283,877

-38.1%

Overall Vacancy
Direct Asking Rents (psf/yr)
YTD Leasing Activity (sf)

12 MONTH
FORECAST

DIRECT RENTAL VS. VACANCY RATES

$27.00

20.0%

$26.00

15.0%

$25.00

10.0%

$24.00
$23.00

5.0%

$22.00

0.0%

$21.00
2010

2011

2012

2013

DIRECT GROSS RENTAL RATE

Q3 2014

DIRECT VACANCY RATE

OVERALL OCCUPIER ACTIVITY

For more information, contact:

Robert Hoefer, Director of Research
+1(713) 877-1700
robert.hoefer@cushwake.com

20.0
15.0

16.1

8.3

0.0

12.1

5.0

10.7

10.0
8.9

Houstons office market continued to record strong fundamentals

through third quarter. Overall vacancy rates fell a full percentage
point compared to third quarter of 2013, to 11.9%, although almost
4.0 million square feet (msf) were completed last year and 3.0 msf in
2014 thus far. Overall rental rates in class A space increased by 10.9%
citywide from this time last year, ending at $37.14 per square foot
(psf) per year. Class A overall rental rates in the CBD increased to
$42.95 psf, up by 14.4%. Year-to-date absorption totaled 3.2 msf
citywide, the vast majority in class A space.

msf

OFFICE MARKET

Cushman & Wakefield of Texas, Inc.

1330 Post Oak Boulevard, Suite 2700
Houston, TX 77080-3054
www.cushmanwakefield.com/knowledge

OUTLOOK

psf/yr

Houston remained firmly in growth territory at

the end of third quarter, continuing to add jobs
at 3.0% or higher since the end of 2011. Job
growth in the 12-month period ending August
2014 was 3.9%, totaling 107,400 jobs. For 2014,
the total jobs added could top both 2007 and 2012, the most recent
years with more than 100,000 new jobs, while forecasts for 2014 and
2015 call for continued job growth in the 2.0%-3.0% range. At the end
of August, the unemployment rate for Houston was 5.4%, generally
considered the level of full employment and almost a full percentage
point below the U.S. average. All sectors recorded positive growth
year-over-year, led by education and health services (19,000 jobs),
professional and business services (16,000 jobs), and trade
transportation and utilities (14,000 jobs). Measures of the economy
such as the Purchasing Managers Index have been in positive territory
for five years now, recording 55.6% in August. The Houston area is
buoyed by several factors that together create a unique blend for
diverse growth. While still heavily reliant on the base industry of
energy, strengths in manufacturing, biotechnology (including medical),
distribution and logistics, and aerospace all contribute to a growing
and multi-cultural workforce. Houstons port is likely to see strong
growth in the near future due to the opening of Mexicos oil and gas
industry, the Panama Canal expansion, chemical plant expansions
along the Gulf Coast, and increased exports of natural gas.
Demographically, the area continues to add population through inmigration, both from within the U.S. and internationally. Population
growth has led to a robust single-family housing market, with a supply
of inventory significantly lower than the nation, increasing median
prices and demand. Remaining one of the largest metro areas with a
low cost of living combined with strong international ties, Houstons
position as a global city remains in the forefront, with almost 100
foreign consulates and numerous foreign-owned firms and companies
involved in international business and trade.

2010

2011

2012

2013

YTD 2014

LEASING ACTIVITY
The market terms and definitions in this report are based on NAIOP standards. No
warranty or representation, express or implied, is made to the accuracy or completeness
of the information contained herein, and same is submitted subject to errors, omissions,
change of price, rental or other conditions, withdrawal without notice, and to any special
listing conditions imposed by our principals.
2014 Cushman & Wakefield, Inc. All rights reserved.

HOUSTON, TX
SUBMARKET

INVENTORY

OVERALL
VACANCY
RATE

YTD LEASING
ACTIVITY

UNDER
CONSTRUCTION

YTD
CONSTRUCTION
COMPLETIONS

YTD DIRECT
NET ABSORPTION

YTD OVERALL
NET ABSORPTION

9.8%

DIRECT
VACANCY
RATE
8.4%

DIRECT WTD. AVG.

CLASS A GROSS
RENTAL RATE*

358,269

OVERALL WTD. AVG

ALL CLASSES GROSS
RENTAL RATE*
$35.90

37,934,428

1,319,702

976,124

273,713

South Main

2,517,329

14.8%

14.8%

130,801

50,000

160,240

160,240

$23.17

$41.00

Richmond/Buffalo
Speedway

9,640,375

8.3%

8.2%

445,967

950,000

111,227

116,533

$28.06

$40.13

Montrose

3,209,521

4.1%

3.9%

189,018

76,000

21,261

23,958

$31.03

$29.84

West Loop/Galleria

24,361,540

10.0%

9.0%

1,291,080

822,146

375,427

420,552

$32.04

$40.84

SW Houston/Fort
Bend County

10,474,652

19.5%

18.2%

542,688

(13,095)

(5,258)

$21.36

$26.69

Gulf
Freeway/Pasadena

1,429,993

9.0%

9.0%

53,276

78,000

36,136

36,136

$16.69

$32.50

NASA/Clear Lake

4,614,368

12.4%

12.1%

251,003

69,403

65,410

$20.55

$23.61

Katy Freeway

24,317,076

7.2%

6.7%

835,140

4,408,099

1,539,731

1,071,478

917,526

$29.82

$35.41

Westheimer/Gessner

14,684,239

12.8%

12.5%

800,780

717,000

318,108

91,559

45,953

$24.91

$39.80

San Felipe/Voss

5,090,941

10.1%

9.8%

287,163

50,867

63,953

$27.80

$38.69

Richmond/
Fountainview

1,117,820

23.3%

23.3%

124,654

40,779

40,779

$15.45

N/A

SW Freeway/Hillcroft

3,018,163

24.7%

24.7%

139,696

5,205

6,543

$15.21

N/A

Northwest

7,752,917

19.6%

18.0%

591,402

321,363

55,500

189,397

238,740

$20.17

$25.82

North Belt

11,477,879

17.3%

16.3%

559,707

57,165

158,210

$17.31

$28.28

F.M. 1960

6,435,022

20.2%

19.9%

317,872

466,000

271,384

69,603

46,588

$20.40

$35.06

Woodlands/Conroe

6,013,364

8.8%

7.7%

362,506

971,753

679,088

400,704

440,743

$33.11

$36.21

East/Northeast

1,073,170

15.3%

15.3%

41,422

15,396

26,529

$17.87

$24.00

37,934,428

9.8%

8.4%

1,319,702

976,124

273,713

358,269

$35.90

$43.77

137,228,369

12.5%

11.8%

6,964,175

8,734,361

2,989,811

2,752,752

2,803,135

$24.14

$35.11

175,162,797

11.9%

11.1%

8,283,877 9,710,485

2,989,811

3,026,465

3,161,404

$26.01

$37.67

Central Business
District

CBD
SUBURBAN

TOTALS

$43.77

* RENTAL RATES REFLECT ASKING $PSF/YEAR

MARKET HIGHLIGHTS
SIGNIFICANT Q3 2014 LEASE TRANSACTIONS

SUBMARKET

TENANT

BUILDING CLASS

2550 North Loop West

Northwest

cPanel Inc.

100,588

1000 Louisiana

Central Business District

Gardere Wynne Sewell LLP

74,975

SIGNIFICANT Q3 2014 SALE TRANSACTIONS

SUBMARKET

BUYER

PURCHASE PRICE / $PSF

9700 Bissonnet

SW Houston/Fort Bend
County

Omninet Capital

Undisclosed

525,580

3040 Post Oak Boulevard

West Loop/Galleria

MetLife Real Estate Investors

$126,000,000 / $295

427,486

SIGNIFICANT Q3 2014 CONSTRUCTION

COMPLETIONS
935 North Eldridge Parkway

SUBMARKET

MAJOR TENANT

COMPLETION DATE

Katy Freeway

ConocoPhillips

Q3 2014

530,000 (100%)

5775 North Sam Houston Parkway North

F.M. 1960

N/A

Q3 2014

271,384 (0%)

SIGNIFICANT PROJECTS UNDER

CONSTRUCTION
609 Main

SUBMARKET

MAJOR TENANT

COMPLETION DATE

Central Business District

N/A

Q4 2016

976,124 (0%)

925 North Eldridge Parkway

Katy Freeway

ConocoPhillips

Q3 2015

600,000 (100%)

Cushman & Wakefield of Texas, Inc.

1330 Post Oak Boulevard, Suite 2700
Houston, TX 77080-3054
www.cushmanwakefield.com/knowledge

For more information, contact:

Robert Hoefer, Director of Research
+1(713) 877-1700
robert.hoefer@cushwake.com

SQUARE FEET

SQUARE FEET

BUILDING SQUARE FEET

(% LEASED)

BUILDING SQUARE FEET

(% LEASED)

The market terms and definitions in this report are based on NAIOP standards. No
warranty or representation, express or implied, is made to the accuracy or completeness
of the information contained herein, and same is submitted subject to errors, omissions,
change of price, rental or other conditions, withdrawal without notice, and to any special
listing conditions imposed by our principals.
2014 Cushman & Wakefield, Inc. All rights reserved.