Market Brief...
Houston
OFFICE
3Q19 Property Pictured Above: 11451 Katy Freeway | Houston, Texas 77079
HOUSTON OFFICE MARKET BRIEF 3Q 2019
TABLE OF CONTENTS 1. HOUSTON OFFICE TEAM AND SUBMARKETS
1 2 3
2. HOUSTON OFFICE MARKET A. Facts and Figures
2. SUBMARKET INTELLIGENCE
A. CBD B. Katy Freeway West C. West Loop D. The Woodlands E. Westchase F. Greenspoint/IAH G. Greenway Plaza H. FM 1960 Corridor I. Medical Center J. Katy Freeway East K. Sugar Land L. Clear Lake M. Midtown N. San Felipe/Fountain View O. West Belt P. Southwest Beltway 8 Q. East Houston/Pasadena R. North Loop West S. Bellaire T. Northwest/Highway 290 Corridor U. Far West V. Southwest Freeway X. Kingwood Y. Suburban Outliers
1
HOUSTON HLC SUBMARKET COVERAGE
OTHER SUBMARKETS 1 CBD | 49,483,532 SF 2 WEST LOOP | 24,152,298 SF 3 WESTCHASE | 18,031,349 SF 4 GREENWAY PLAZA | 11,561,015 SF 5 MEDICAL CENTER | 10,529,583 SF 6 MIDTOWN | 6,539,303 SF 7 SAN FELIPE/FOUNTAINVIEW | 6,175,155 SF 8 NORTH LOOP WEST | 4,328,188 SF 9 BELLAIRE | 4,243,553 SF 10 SOUTHWEST FREEWAY | 3,713,180 SF TOMBALL
THE WOODLANDS 19,934,055 SF
KINGWOOD 2,309,766 SF
SPRING
FM 1960 CORRIDOR 11,230,445 SF
HUMBLE
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
GREENSPOINT/IAH 12,339,330 SF WEST BELT 5,875,405 SF
EAST HOUSTON/ PASADENA 5,393,112 SF
KATY FREEWAY EAST 9,194,036 SF
KATY FREEWAY WEST 26,907,209 SF
KATY
NORTHWEST/ HIGHWAY 290 CORRIDOR 4,186,546 SF
LAKE HOUSTON
8
HOUSTON FAR WEST 4,051,030 SF
2
6
7 3
GALLERIA
10 SOUTHWEST BELTWAY 8 5,922,830 SF
BAY TOWN
1 SHIP CHANNEL
4 9 5
MEDICAL CENTER
PASADENA LA PORTE HOBBY AIRPORT
SUGAR LAND
ELLINGTON AIRPORT
RICHMOND
TRINITY BA
MISSOURI CITY
SUGAR LAND 7,508,428 SF
PEARLAND
CLEAR LAKE 6,959,359 SF
LEAGUE CITY
2
HLC HOUSTON OFFICE MARKET EXPERTS
Tod Harrison joined Holt Lunsford Commercial in 2016, as Director of Management Services for the Houston market, and in 2018 was appointed Managing Principal of the Houston Office Division. Tod is a Houston office specialist representing both private and institutional investors. In addition, he identifies strategic acquisition and disposition opportunities for his clients. Tod began his career in 1988 at Trammell Crow Company, and has extensive experience in office leasing, business development, strategic planning, acquisitions, dispositions, financial reporting, staff development, and building operations. Prior to joining HLC, he served as Associate Director of Property Management at Weingarten Realty, and Vice President at Transwestern. TOD HARRISON Managing Principal tharrison@hlhouston.com 713.602.3766
Tod is a Certified Property Manager (CPMÂŽ), and an active member of Institute of Real Estate Management (IREM). He is also a licensed Real Estate Salesperson in Texas. Tod holds a BA in Political Science from the University of West Florida, and an MBA from Keller Graduate School of Management.
Brad Segreto joined Holt Lunsford Commercial in 2017 and serves as a Market Associate. His primary responsibilities include project leasing, tenant representation, and business development initiatives for HLC’s office portfolio in the Greater Houston market. Prior to HLC, Brad worked as a sales representative for an industrial engineering firm where he assisted clients with their predictive and reliability maintenance needs in the oil and gas sector and beyond. During his time at Holt Lunsford Commercial, Brad has participated in over 90 transactions totaling more than 3.4 million square feet of rentable space.
BRAD SEGRETO Market Associate bsegreto@hlhouston.com 713.602.3758
3
Brad received his Bachelor of Science in Organizational Leadership & Supervision from the University of Houston and is a licensed real estate salesperson in Texas. Originally from The Woodlands, Brad is an active member of NAIOP, Young Professionals in Energy, the Houston Golf Association, and Champions Golf Club.
3
HLC HOUSTON OFFICE OVERALL MARKET
VACANCY - OVERALL HOUSTON 18.7%
17.4%
CONSTRUCTION - OVERALL HOUSTON
20.0%
4,500,000
18.0%
4,000,000
16.0%
3,500,000
14.0%
3,000,000
12.0%
2,500,000 10.0%
2,000,000
8.0%
1,500,000
6.0%
1.3%
4.0%
1,000,000
2.0%
500,000
0.0% 4Q 16
1Q. 17
2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
Direct
3Q 18
4Q 18
1Q 19
Sublet
2Q 19
3Q 19
0 4Q 16
1Q 17
2Q 17
5,000,000
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Under Construction
OVERVIEW - OVERALL HOUSTON
ABSORPTION - OVERALL HOUSTON 6,000,000
4Q 17
Delivered Inventory
Total
7,000,000
3Q 17
20.0%
4,000,000
19.0% 3,000,000
18.0% 17 .0%
4,000,000
15.0%
2,000,000
14.0%
1,000,000 0
2,000,000
16.0%
3,000,000
1,000,000
0
13.0% 12.0%
(1,000,000)
11.0%
(1,000,000) (2,000,000) 4Q 16
1Q 17
2Q 17
3Q 17
4Q 17
Total Net
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
10.0%
(2,000,000) 3Q 16
4Q 16
1Q 17
2Q 17
Absorption
3Q 17
4Q 17
1Q 18
2Q 18
Deliveries
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Vacancy
Leasing Activity
Source: CoStar 3Q 2019 Office Report
4
HLC HOUSTON OFFICE OVERALL MARKET
Existing Inventory
Vacancy
YTD Net Absorption
YTD Deliveries
Under Const. SF
20.0%
219,309
780,593
1,273,699
$41.52
25.2%
(78,577)
120,000
0
$29.95
4,587,659
19.0%
(573,397)
0
207,202
$35.52
1,987,972
10.0%
271,975
256,340
334,938
$31.22
3,664,860
4,144,460
23.0%
12,429
0
0
$26.88
12,339,330
5,545,931
5,569,658
45.1%
(78,996)
0
0
$18.70
11,561,015
1,564,733
1,650,178
14.3%
142,506
0
0
$32.16
145
11,230,445
2,253,865
2,340,774
20.8%
(501,049)
184,080
73,000
$20.07
58
10,529,583
581,633
622,028
5.9%
(110,262)
0
0
$26.44
64
9,194,036
790,892
891,922
9.7%
215,761
102,474
311,280
$33.94
Sugar Land
92
7,508,428
851,376
933,952
12.4%
(100,369)
38,599
176,163
$26.51
Clear Lake
95
6,959,359
1,080,724
1,083,089
15.6%
78,364
0
73,614
$22.71
Market
#Bldgs.
Total RBA
Direct SF
Total SF
Vac. %
CBD
89
49,483,532
Katy Freeway West
163
26,907,209
9,017,437
9,911,986
5,837,060
6,791,988
West Loop
104
24,152,298
4,211,368
The Woodlands
164
19,934,055
1,824,741
Westchase
104
18,031,349
Greenspoint/IAH
93
Greenway Plaza
60
FM 1960 Corridor Medical Center Katy Freeway East
Quoted Rates
Midtown
60
6,539,303
724,709
751,657
11.5%
(22,003)
35,363
167,046
$28.59
San Felipe/Fountain View
55
6,175,155
1,185,041
1,218,494
19.7%
(132,495)
0
0
$28.37
West Belt
67
5,875,405
962,670
1,094,821
18.6%
38,532
0
0
$25.03
Southwest Beltway 8
61
5,922,830
1,275,562
1,333,649
22.5%
(77,110)
0
0
$17.17
East Houston/Pasadena
93
5,393,112
691,515
705,303
13.1%
(49,138)
0
0
$21.53
North Loop West
42
4,328,188
989,081
989,081
22.9%
(78,398)
0
89,425
$25.33
Bellaire
33
4,243,553
615,637
658,378
15.5%
34,491
0
0
$25.47
Northwest/Highway 290 Corridor
48
4,186,546
819,307
820,510
19.6%
73,959
64,348
0
$17.11
Far West
55
4,051,030
480,816
490,398
12.1%
(23,823)
0
200,920
$28.05
Southwest Freeway
32
3,713,180
931,819
937,855
25.3%
(37,592)
0
0
$16.12
Kingwood
42
2,309,766
281,775
291,721
12.6%
14,422
0
311,230
$25.83
Suburban Outliers
173
9,761,307
1,091,527
1,110,911
11.4%
100,933
183,233
152,000
$25.78
1,992
270,330,014
47,274,079
50,918,444
18.9%
(660,528)
1,765,030
3,370,517
$26.25
Totals
5
HOUSTON CENTRAL BUSINESS DISTRICT SUBMARKET INTELLIGENCE Absorption (70,315)
vs. Prev. Qtr
vs. 12 Mths Ago
197,278
119,541
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
20.0%
19.9%
19.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
636,755
1,425,500
vs. Prev. Qtr
vs. 12 Mths Ago
780,593
-
413,111 Delivered SF Quoted Rates $41.52
vs. Prev. Qtr
vs. 12 Mths Ago
$41.64
$41.33
VITAL STATS
22.0%
1,200,000 1,000,000
20.0%
800,000 600,000
18.0%
400,000 200,000
16.0%
0 (200,000)
14.0%
(400,000) (600,000)
12.0%
(800,000) 3Q 16
4Q 16
1Q 17
2Q 17
3Q 17
4Q 17
Absorption
1Q 18
2Q 18
Deliveries
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The CBD is the largest Houston office submarket, containing more than 50M SF of class A and B office space. Downtown has also commanded the highest rents in Houston with a current average of $41.52/SF for class A and B property types. Downtown is home to a large concentration of energy, professional and business services, and government tenants. Recent residential and retail developments, and the existing infrastructure of the underground tunnel system have helped Houston’s CBD become a true live-work-play environment. At the close of 3Q 2019, the CBD had a vacancy rate of 20.0%, which was slightly higher than 2Q. Absorption was negative with more than 70K SF, down from the 197K SF absorbed in 2Q. Leasing activity remained solid with more than 400K SF of deals completed but still lower than the almost 640K SF of deals in 2Q. Hines’ Texas Tower makes up the more than 1M SF of class A office space under construction, and is set to open late 2021.
DEALS IN THE MARKET • McCrory Building/1004 Prairie Street – a 29,036 SF class B office building
• The Tamborello Building/1901 Milam Street – 24K SF class B office building
• 421 Fannin Street – a 20K SF class B office building • 1014 Prairie Street – a 14K SF class B office building • 502 Main & 914 Prairie/502 Main Street – a 10,400 SF class B office building
NEW DEVELOPMENTS • Texas Tower/845 Texas Avenue – a 1,123,699 SF class A office building
LARGE EXISTING VACANCIES • 800 Bell/800 Bell Street – 1,314,350 SF • 1001 Fannin Street – 624,275 SF • JP Morgan Chase Tower/600 Travis Street – 554,726 SF
15K SF lease in 717 Texas.
• Enterprise Plaza/1100 Louisiana Street – 510,939 SF • 1600 Smith Street – 493,587 SF • Wells Fargo Plaza/1000 Louisiana Street – 491,257 SF • Fulbright Tower/1301 McKinney Street – 460,256 SF • GreenStreet Tower/1201 Fannin Street – 457,139 SF • Two Allen Center/1200 Smith Street – 448,656 SF • One City Centre/1021 Main Street – 424,260 SF • 4 Houston Center/1221 Lamar Street – 420,415 SF • One Shell Plaza/910 Louisiana Street – 329,007 SF • Bank of America Center/700 Louisiana Street –
Chase Tower.
• 717 Texas/717 Texas Avenue – 324,032 SF
TOP LEASE TRANSACTIONS • Ontellus has signed a 32K SF sublease in One Shell Plaza.
• Enterprise Products has signed a 22K SF lease in 1100 Louisiana.
• Hunton Andrews Kurth has signed a 22K SF lease in JP Morgan Chase Tower.
• Shackleford, Bowen, McKinley & Norton has signed a • G2X Energy has signed a 13K SF lease in JP Morgan
6
328,420 SF
KATY FREEWAY WEST SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(291,879)
123,802
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
25.6%
26.2%
26.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
142,507
557,331 Delivered SF Quoted Rates $29.95
202,587
837,380
vs. Prev. Qtr
vs. 12 Mths Ago
120,000
-
vs. Prev. Qtr
vs. 12 Mths Ago
$30.27
$28.39
VITAL STATS
30.0%
500,000
300,000 25.0% 100,000
(100,000)
20.0%
(300,000)
15.0%
(500,000) 3Q 16
4Q 16
1Q 17
Absorption
2Q 17
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Deliveries
1Q 19
2Q 19
3Q 19
Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK No major Houston office submarket besides the West Houston Katy Freeway West was hit harder by the oil downturn, other than perhaps the Greenspoint submarket. This submarket includes the Energy Corridor, which is home to large energy corporations ConocoPhillips, Shell, and British Petroleum. It greatly benefits from the many supporting tenants that service these large energy corporations. The Katy Freeway West submarket has transformed from landlord-driven to a tenant-driven submarket over the past three years with the downturn of the energy sector. The submarket is also experiencing a recent and significant flight-to-quality as these large corporations continue to fight for a talented workforce. Restructuring in Houston’s energy industry was necessary for the sector. Although one-third of energy jobs lost during the oil dip have been regained, the decline in oil prices forced corporations to restructure and rethink, resulting in greater efficiency. Technological progress has increased energy companies’ ability to do more with less, which may result in less demand for traditional oil and gas jobs in the future. At the close of 3Q 2019, the submarket had one of the highest vacancy rates in the city at 25.6% but was slightly lower than 2Q. Absorption was positive in 3Q with more than 140K SF absorbed. Leasing activity picked up in 3Q with more than 550K SF of deals completed. There are currently no projects under construction and no projects were delivered in 3Q. However, several proposed developments are planned for the future.
TOP LEASE TRANSACTIONS • OXEA Houston has signed a 20K SF lease in West Memorial Place 1. • New Era Life Insurance has signed 11K SF lease in Energy Plaza. • Kuiper Law Firm has signed a 6K SF lease in the Woodbranch Building. • KEM Energy has signed a 3K SF lease in Memorial Ashford Place.
DEALS IN THE MARKET • Cardinal Health Building/1330 Enclave Parkway – a 200K SF class A office building • Atrium at Park Ten/16340 Park Ten Place Drive – a 139,834 SF class B office building • Ashford Place/1500 South Dairy Ashford Street – a 134,049 SF class B office building • Timberway II/15995 North Barkers Landing Road – a 130,828 SF class B office building • Ten West Plaza/15915 Katy Freeway – a 105,459 SF class B office building • 1250 Woodbranch Park Drive – a 102,956 SF class B office building • 16900 Park Row – a 77,000 SF class B office building • Park Row Plaza/17171 Park Row – a 74,406 SF class B office building • Two Park Ten Plaza/16300 Katy Freeway – a 57,125 SF class B office building • One Park Ten Place/16365 Park Ten Place Drive – a 34,089 SF class B office building
LARGE EXISTING VACANCIES • Three WestLake Park/550 Westlake Park Boulevard – 417,854 SF • Two WestLake/580 Westlake Park Boulevard – 348,787 SF • Four WestLake Park/200 Westlake Park Boulevard – 323,341 SF • Three Eldridge Place/737 North Eldridge Parkway – 306,411 SF • Energy Tower II/11720 Katy Freeway – 297,919 SF • West Memorial Place 2/15377 Memorial Drive – 283,724 SF • Eldridge Oaks Phase 1/1080 Eldridge Parkway – 263,635 SF • Republic Square 1/13501 Katy Freeway – 243,671 SF • Two Eldridge Place/757 North Eldridge Parkway – 224,246 SF • Energy Center I/585 North Dairy Ashford Road – 160,907 SF
7
WEST LOOP SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(76,268)
74,515
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
17.4%
16.9%
16.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
651,377
583,605
vs. Prev. Qtr
vs. 12 Mths Ago
-
593,850
(273,859)
377,153 Delivered SF Quoted Rate $35.52
vs. Prev. Qtr
vs. 12 Mths Ago
$35.89
$34.57
VITAL STATS
24.0% 20.0%
600,0001,000,000
19.0%
800,000
350,000
22.0% 18.0%
600,000
100,000
17 .0%
20.0%
400,000
16.0%
(150,000)
200,000
18.0% 15.0%
(400,000)
0
14.0%
16.0%
(650,000)
13.0%
(200,000)
(900,000)
12.0%
14.0%
3Q
1Q 16 16
4Q
2Q16 16
1Q
3Q 17 16
2Q
4Q 17 16
Absorption Absorption
3Q
1Q 17 17
4Q 2Q 17
17
1Q 183Q
17
2Q 184Q
17
Deliveries Deliveries
3Q 4Q 1Q 2Q 3Q 18 1Q 18 2Q 19 3Q 19 4Q 19
18
18
18
18
(400,000)
1Q 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK CoStar’s Galleria, Uptown, Post Oak Park, and Riverway submarkets make up HLC’s West Loop submarket. These submarkets contain approximately 24M SF of class A and B office space. Thanks to the high-profile location and assets, asking rents here are among the highest in the city. Historically, the West Loop submarket obtains average rents of $35.52/SF, second only to the CBD. The many ongoing infrastructure improvements have created longer than usual traffic jams in an already congested area. The main thoroughfare for the submarket, Post Oak Boulevard, is undergoing a $200M renovation to increase it’s walkable appeal and add a dedicated bus corridor. The Post Oak Boulevard project is estimated to be complete in 2020. Stonelake Capital Partners continues construction of its class A, 210K SF Park Place Tower office building, which is located in between River Oaks District and Highland Village at 4200 Westheimer Road. The asset is currently 13.8% pre-leased and is poised to achieve some of the highest rental rates in the city. At the close of 3Q 2019, the submarket had a vacancy rate of 17.4% up over 0.5% from 2Q. Absorption remained negative with almost 275K SF of space given back. Leasing activity remained strong with more than 375K SF of deals completed in 3Q but was nearly half of the activity in 2Q. Currently there is about 200K SF of office product under construction and no class A or B office space delivered in the 3Q.
8
TOP LEASE TRANSACTIONS • Engie has signed a 110K SF lease in Four Oaks Place. • Sumitomo Corporation has signed a 68 SF sublease in Four Oaks Place.
• Williamsburg Enterprises has signed a 7K SF lease in Three Riverway.
• Doeren Mayhew Capital Advisors has signed a 5K SF sublease in One Riverway.
• Mission Secure, Inc. has signed a 4K SF lease in 1770 Saint James Place.
• CIVE has signed a 4K SF lease in 5444 Westheimer. NEW DEVELOPMENTS • Park Place | River Oaks/4200 Westheimer Road – a 207,202 SF class A office building.
LARGE EXISTING VACANCIES • Marathon Oil Tower/5555 San Felipe Street – 834,408 SF • Williams Tower/2800 Post Oak Boulevard – 405,562 SF • Sage Plaza/5151 San Felipe Street – 287,828 SF • Post Oak Central II/1980 Post Oak Boulevard – 251,626 SF • Five Post Oak Park/4400 Post Oak Parkway – 230,373 SF • BHP Petroleum/1500 Post Oak Boulevard – 204,417 SF • One Riverway/One Riverway – 198,626 SF • Wells Fargo Bank Tower/1300 Post Oak Boulevard – 197,457 SF • Galleria Financial Center/5065-5075 Westheimer Road – 175,114 SF • Three Post Oak Central/1990 Post Oak Boulevard – 170,199 SF
8
THE WOODLANDS SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
161,299
165,312
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.0%
8.1%
8.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
381,152
244,438
vs. Prev. Qtr
vs. 12 Mths Ago
(330,756)
252,479 Delivered SF 48,840 Quoted Rates $31.22
207,500
-
vs. Prev. Qtr
vs. 12 Mths Ago
$31.31
$30.92
VITAL STATS
12.0% 16.0%
300,000
11.5%
250,000 660,000
11.0%
200,000
10.5%
460,000 150,000
14.0%
10.0%
100,000 260,000
9.5%
50,000
9.0%
0
60,000
12.0%
8.5%
(50,000)
8.0%
(100,000)
(140,000)
7.5% 7.0% 10.0%
(150,000) 3Q 1Q 16
16
4Q 2Q 16
16
1Q 3Q 17
16
2Q 4Q 17
16
3Q 1Q 17
17
4Q 2Q 17
17
Absorption Absorption
1Q 3Q 18
17
2Q 4Q 18
17
Deliveries Deliveries
3Q 1Q 18
18
4Q 2Q 18
18
1Q 3Q 19
18
2Q 4Q 19
18
3Q1Q 19
(340,000) (200,000)
19
Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Woodlands continues to be one of the most active office markets in Houston. It has grown so much that it now competes with other premiere submarkets such as the CBD, West Loop, the Energy Corridor, and Greenway Plaza. The Woodlands submarket continues to outperform averages in Houston by commanding higher rents, maintaining a low vacancy rate, and significant construction activity. The submarket’s recent growth is primarily attributed to the new developments in Springwoods Village located just south of The Woodlands along the recently completed Grand Parkway. ExxonMobil, Southwestern Energy, Hewlett Packard, and ABS are just a few of the large tenants who have made significant investments in this growing submarket. In 3Q, the Woodlands remained one of the best-performing submarkets in all of Houston. The submarket still retains one of the city’s lowest vacancy rates at 10.0% but was slightly up from the 8.1% in 2Q. Leasing activity remained somewhat strong with about 250K SF of deals completed in 3Q. However, absorption turned negative in 3Q with 330K SF given back. There is currently more than 330K SF of office product under construction and 48K SF of space was delivered in 3Q.
TOP LEASE TRANSACTIONS • PTW Energy Services has signed a 19K SF lease in Sierra Pines.
• Newpark Resources, Inc. has signed a 10K SF lease in Research Forest Lakeside.
• Arroyo Energy Investors has signed a 9.4K SF lease in Springwoods Village.
• United Capital Advisers has signed a 5.6K SF lease in Woodlands Town Center.
• Encompass Health has signed a 5K SF lease in 2201
• Woodlands Family Institute has signed a 4.8K SF lease in The Woodstead Building.
DEALS IN THE MARKET • 8800 Technology Forest Place – a 268,950 SF class B office building
• The Gateway Building/26865 I-45 – a 24,350 SF class B office building
NEW DEVELOPMENTS • Alight Solutions/8770 New Trails Drive – a 180K SF class A office building
• Building 9/9709 Lakeside Boulevard – a 134,938 SF class A office building
• Phase II/2306 Rayford Road – a 20K SF class B office building
LARGE EXISTING VACANCIES • Hewitt Lake Woodlands/9500 Lakeside Boulevard – 360K SF • South Tower/10000 Energy Drive – 288,609 SF • 24 Waterway/24 Waterway Avenue – 113,796 SF • CityPlace 1/1700 City Plaza Drive – 113,174 SF • Three Hughes Landing/1780 Hughes Landing Boulevard – 92,470 SF • 2001 Timberloch Place – 83,008 SF • The Woodlands Medical Plaza 4/9180 Pinecroft Drive – 83,008 SF • Wildwood Corporate Centre I/460 Wildwood Forest Drive – 70,240 SF • Lake Front North/2107 Research Forest Drive – 64,840 SF • Waterway Plaza Two/10001 Woodloch Forest Drive – 58,656 SF • Chase Bank Building/25025 North I-45 Freeway – 51,686 SF • Town Center I/1450 Lake Robbins Drive – 56,088 SF
Timberloch. 9
9
WESTCHASE SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
63,013
(241,237)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
23.0%
23.5%
23.8%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
543,526
342,398
vs. Prev. Qtr
vs. 12 Mths Ago
-
21,000
89,996
373,893 Delivered SF Quoted Rates $26.88
vs. Prev. Qtr
vs. 12 Mths Ago
$27.19
$27.38
VITAL STATS
20.0% 24.0%
800,000 1,250,000
18.0%
600,000
16.0% 400,000 14.0% 22.0%
750,000 200,000
12.0% 10.0%
0
8.0% 20.0% 6.0%
(200,000) 250,000 (400,000)
4.0% (600,000)
2.0% 18.0% 0.0%
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 3Q 18 17
2Q 4Q 18 17
Deliveries Deliveries
3Q 1Q 18 18
(250,000) (800,000) 4Q 1Q 2Q 3Q 2Q 3Q 4Q 1Q 18 19 19 19 18 18 18 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Westchase office submarket is located 15 miles west of the CBD and five miles southeast of the Energy Corridor. Historically, this submarket is popular with oil, gas, and engineering firms, and provides alternative space from the nearby Energy Corridor. However, given the concentration of energy related tenants in this submarket, office space demand in Westchase is affected by changes in the energy sector similar to the Energy Corridor. Westchase surpasses almost all other submarkets with its unrivaled ingress and egress, making it an attractive alternative to CBD, West Loop, and other competing submarkets.
DEALS IN THE MARKET • Columbia Centre/11011 Richmond Avenue – a 166,720 SF class A office building
• The Colonnade/11111 Richmond Avenue – a 96,212 SF class B office building
• 10500 Richmond Avenue – a 95,170 SF class B office building
• 3030 South Gessner Road – a 61,599 SF class B office building
• 2950 South Gessner Road – a 60,532 SF class B office building
• 10555 Richmond Avenue – a 49,865 SF class B office building
At the close of 3Q 2019, the submarket had a vacancy rate of 23.0% which was slightly lower than 2Q. The submarket continued its positive absorption from 2Q with approximately 90K SF of class A and B space absorbed by the end of 3Q. Leasing activity remained strong with more than 370K SF of deals completed in 3Q.
TOP LEASE TRANSACTIONS • ABB, Inc. has signed a 43K SF lease in Granite Briarpark Green. • Cognizant Technology Solutions has signed a 23K SF lease in the Towers at Westchase II. • Open Systems International has signed an 8K SF lease in Westchase III. • Keystone Advisors has signed a 7K SF lease in 10700 Richmond.
10
• 6650 West Sam Houston Parkway South – a 45K SF class A office building
• 2610 West Sam Houston Parkway South – a 26,523 SF class B office building
• 10590 Westoffice Drive – a 26,451 SF class B office building
LARGE EXISTING VACANCIES • 10200 Bellaire Boulevard – 568,458 SF • Pinnacle Westchase/3010 Briarpark Drive – 366,487 SF • CityWestPlace Building 4/2103 CityWest Boulevard – 203,045 SF • CityWestPlace Building 1/2101 CityWest Boulevard – 188,312 SF • 3250 Briarpark Drive – 164,972 SF • 2500 CityWest/2500 CityWest Boulevard – 151,458 SF • Millennium Tower/10375 Richmond Avenue – 150,911 SF • Honeywell Building/1250 West Sam Houston Parkway – 145,034 SF • Towers at Westchase II/10350 Richmond Avenue – 143,347 SF • Towers at Westchase I/10370 Richmond Avenue – 140,561 SF • West8 Tower/10205 Westheimer Road – 134,969 SF • 10000 Richmond Drive – 118,215 SF 10
GREENSPOINT/IAH SUBMARKET INTELLIGENCE Absorption 66,116 Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
(89,713)
57,522
vs. Prev. Qtr
vs. 12 Mths Ago
45.1%
45.7%
44.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
145,424
202,482
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
125,214 Delivered SF Quoted Rate $18.70
$18.89
VITAL STATS
25.0% 48.0%
100,000300,000
24.5% 24.0% 46.0%
0
23.5%
200,000
100,000
44.0% 23.0%
(100,000)
22.5%
0
42.0% 22.0%
(200,000)
(100,000)
21.5% 40.0%
(300,000)
21.0%
(200,000)
20.5% 38.0%
20.0%
(400,000) 3Q
1Q16 16
$19.52
4Q
2Q 16 16
1Q
3Q 17 16
2Q 4Q 17
16
3Q 171Q
Absorption Absorption
17
4Q 172Q
17
1Q 183Q
17
2Q 3Q 4Q 1Q 2Q 18 4Q 18 1Q 18 2Q 19 3Q 19
17
Deliveries Deliveries
18
18
18
3Q
4Q19 18
(300,000)
1Q 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK After four calendar years of large-scale departures, the Greenspoint/IAH office submarket has continued to suffer more than any other submarket in Houston and, unfortunately, there is little to suggest this trend will reverse anytime soon. This northern Houston submarket’s vacancy rate was largely affected by the downturn within the energy sector. Rents have fallen significantly and investors have been working persistently to rebrand this submarket. At the close of 3Q, the Greenspoint/IAH submarket still holds the city’s highes vacancy rate of 45.1%, although slightly lower than 2Q. Absorption was positive with more than 66K SF, up from the nearly 90K SF given back in 2Q. Leasing activity included more than 125K SF of completed deals which was slightly lower than the 145K SF of deals in 2Q.
TOP LEASE TRANSACTIONS • Taylor Smith Consulting has signed a 3K SF lease in Northborough Atrium II.
DEALS IN THE MARKET • 363 North Belt/363 North Sam Houston Parkway East – a 386,277 SF class A office building
• EM Houston/13401 North I-45 – a 143,410 SF class A office building
• Empire Central Tower/12700 Northborough Drive – a 118,905 class B office building
• Imperial 20/16800 Imperial Valley Drive – a 110,255 SF class B office building
• Greens Crossing I/810 Gears Road – a 78,895 SF class B office building
• Greens Crossing II/820 Gears Road – a 78,895 SF class B office building
• Sam Houston Plaza/507 North Sam Houston Parkway East – a 78,622 SF class B office building
• 14450 John F Kennedy Boulevard – a 46,200 SF class B office building
• 1010 Rankin Road – a 45K SF class B office building • 1030-1034 Regional Park Drive – a 22,800 class B office building
LARGE EXISTING VACANCIES • CityNorth 5/17001 Northchase Drive – 458,331 SF • CityNorth 6/12450 Greenspoint Drive – 343,495 SF • CityNorth 1/233 Benmar Drive – 253,562 SF • 363 North Belt/363 North Sam Houston Parkway East – 237,598 SF
• 222 Benmar/222 Benmar Drive – 198,256 SF • Glenborough Tower/100 Glenborough Drive – 181,978 SF
• CityNorth 4/16945 Northchase Drive – 175,670 SF • 396 West Greens Road – 164,411 SF • 10700 North Freeway/10700 North Freeway – 158,870 SF
• North Houston Tech Tower/12707 North Freeway – 157,276 SF
11
11
GREENWAY PLAZA SUBMARKET INTELLIGENCE Absorption 83,080
vs. Prev. Qtr
vs. 12 Mths Ago
(30,858)
67,170
250,000
18.0%
200,000
17 .0%
150,000
vs. Prev. Qtr
vs. 12 Mths Ago
24.0%
14.3%
15.0%
16.0%
23.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
22.0%
162,149
266,522
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
Delivered SF Quoted Rates $32.16
$31.69
300,000 300,000
19.0%
250,000
25.0%
Vacancy
198,353
VITAL STATS
20.0% 26.0%
200,000
150,000
16.0%
100,000
100,000
15.0%
50,000
50,000
21.0% 14.0%
0
20.0% 13.0%
(50,000)
12.0% 19.0%
(100,000)
11.0% 18.0%
(150,000)
(50,000) (100,000) (150,000)
10.0%
17.0%
(200,000) 3Q 1Q 16
16
$31.52
0
4Q 2Q 16
16
1Q 3Q 17
16
2Q 174Q
16
3Q 171Q
Absorption Absorption
17
4Q 172Q
17
1Q 2Q 3Q 4Q 1Q 2Q 3Q 18 3Q 18 4Q 18 1Q 18 2Q 19 3Q 19 4Q 19
17
17
Deliveries Deliveries
18
18
18
18
(200,000)
1Q 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Greenway Plaza office submarket received its name from the 11-building, 50-acre, master-planned complex at the heart of the submarket. Given its convenient location between the West Loop, Medical Center, and CBD submarkets, Greenway Plaza continues to be one of the most desirable submarkets in Houston. Newer construction, including 3737 Buffalo Speedway, Kirby Grove, and Kirby Collection, along with recent improvements to the masterplanned Greenway Plaza complex have helped breathe life back into this submarket. Large exits by Direct Energy and Transocean from Greenway Plaza represent a challenge for the submarket in the near term. As tenants become more efficient, it will become more difficult to fill the voids left by larger tenants. Nevertheless, recent upgrades in the submarket have attracted new tech tenants. Following Occidental Petroleum’s recent acquisition of Anadarko, the energy giant has, for the time being, decided to remain in Greenway. With Occidental’s West Houston campus coming to market it will be interesting to see what the future holds for the energy giant. At the close of 3Q 2019, the submarket continued with a lower than city average vacancy rate of 14.3%. More than 80K SF of space was absorbed in 3Q. Leasing activity consisted of almost 200K SF of deals completed by the end of 3Q.
12
TOP LEASE TRANSACTIONS • Sunnova Energy Corporation has signed a 68K SF lease in Twenty Greenway Plaza.
• PBK Architects has signed a 24K SF renewal in Eleven Greenway Plaza.
• PBK Architects has signed a 16K SF lease in Eleven Greenway Plaza.
• Simon-Kucher & Partners signed a 3.7K SF lease in Phoenix Tower.
LARGE EXISTING VACANCIES • Five Greenway Plaza/5 Greenway Plaza – 746,070 SF • Phoenix Tower/3200 Southwest Freeway – 275,825 SF • Three Greenway Plaza/3 Greenway Plaza – 257,352 SF • Twelve Greenway Plaza/12 Greenway Plaza – 215,241 SF
• 3737 Buffalo Speedway Avenue – 121,272 SF • Nine Greenway Plaza/9 Greenway Plaza – 97,043 SF • 3555 West Alabama/3555 West Alabama Street – 84,896 SF
• Weslayan Tower/24 Greenway Plaza – 81,327 SF • Eleven Greenway Plaza/11 Greenway Plaza – 69,484 SF • Eight Greenway Plaza/8 Greenway Plaza – 69,159 SF • 3555 Timmons/3555 Timmons Lane – 63,813 SF
12
FM 1960INTELLIGENCE CORRIDOR SUBMARKET Absorption (142,284) Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
(376,934)
22,609
vs. Prev. Qtr
vs. 12 Mths Ago
20.8%
18.4%
15.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
199,594
205,912
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
163,764 Delivered SF 156,000 Quoted Rate $20.07
$19.87
VITAL STATS
22.0% 20.0%
100,000 200,000 50,000
20.0% 16.0%
0
150,000
(50,000)
100,000
18.0% 12.0%
(100,000) (150,000) 50,000
16.0% 8.0%
(200,000)
0 (250,000) 14.0% 4.0%
(300,000)
(50,000) (350,000)
12.0% 0.0%
(400,000) 3Q
1Q 16 16
$20.23
4Q
2Q 16 16
1Q
3Q 17 16
2Q
4Q 17 16
3Q
1Q 17 17
4Q 2Q 17
17
Absorption Absorption
1Q 3Q 18
17
2Q 4Q 18
17
3Q 1Q 18
18
4Q 182Q
18
Deliveries Deliveries
1Q 193Q
18
2Q 194Q
18
3Q 191Q
(100,000)
19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK
• Wells Fargo Cypress/12337 Jones Road – a 85,755 SF
HLC’s FM 1960 Corridor office submarket includes CoStar’s FM 1960/Hwy 249, Champions, and I-45 North submarkets. The submarket follows Farm-to-Market Road 1960 from Clay Road in West Houston up to North East Houston and stops just before George Bush International Airport. This submarket is home to more than 10M SF of class A and B office buildings.
• Cornerstone North/3303 FM 1905 West – a 71,069 SF
At the close of 3Q 2019, the submarket had an increased vacancy rate of 20.8% as the true flight to quality in the suburban office markets continued in 3Q. Absorption continued its negative trend with more than 140K SF of space given back, despite the more than 160K SF of deals completed in 3Q. There is currently 73K SF of class A and B office product under construction and 156K SF of space was delivered in 3Q. Average rental rates increased to $20.07 but remain lower than the city and suburban averages.
TOP LEASE TRANSACTIONS • Commercial Tax Network has signed a 3.5K SF lease in
Centra Atrium Building. • Pipeline Threading has signed a 2.5K SF lease in Chasewood Crossing II. • Allergy & ENT Associates has signed a 2.5K SF lease in Lakewood Center.
DEALS IN THE MARKET • 11403 Compaq Center West Drive – a 260,791 SF class
class B office building class B office building
• Champions-Wells Fargo Building/5625 FM 1960 West – a 64,500 class A office building
• Olde Oaks Atrium/3724 FM 1960 West – a 62,414 SF class B office building
• Steeplechase Corner Professional Building/11301
Fallbrook Drive – a 61,165 SF class B office building
NEW DEVELOPMENTS • Kelsey Seabold/Highway 290 & FM 1960 Drive – a 73K SF medical office building
LARGE EXISTING VACANCIES • University Park – Building 9 & 10/11450 Compaq Center West Drive – 208,841 SF
• Noble Energy Center II/1002 Noble Energy Way – 204,480 SF
• Chasewood Crossing III/19350 State Highway 249 – 150,118 SF
• Creekridge II/140 Cypress Station Drive – 143,331 SF • Chasewood Crossing II/19450 State Highway 249 – 70,614 SF
• 616 FM 1960 Road West – 70,466 SF • Northwest Medical Plaza/800 Peakwood Drive – 65,891 SF
B office building
• Cy-Fair MOB/13114 FM 1960 West – 56,470 SF • Cypress Station Medical Building/1140 Cypress Station
SF class A office building
• Two Kuykendahl Place/15531 Kuykendahl Road – 45K
B office building
• Chasewood Crossing I/19500 State Highway 249 –
SF class A office building
• Cypresswood Crossing/16000 Stuebner Airline Road –
• Two Chasewood/20405 State Highway 249 – a 153,226 • Denmark House/12777 Jones Road – a 119,388 SF class • One Chasewood/20333 State Highway 249 – a 107,968 • Four Chasewood/20329 State Highway 249 – a 105,223 SF class A office building
• Three Chasewood/20445 State Highway 249 – a 97,552 SF class A office building
13
Drive – 52,038 SF SF
44,089 SF 43,356 SF
• Texas School of Business/711 Airtex Drive – 42,890 SF • Torrey Chase Two/14505 Torrey Chase Boulevard – 27,413 SF 13
MEDICAL CENTER SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(71,037)
31,211
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
5.9%
5.8%
4.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
(15,185)
79,272 Delivered SF Quoted Rates $26.44
120,721
38,460
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$27.79
$26.68
VITAL STATS
14.0% 6.0%
200,000 120,000 100,000 80,000150,000
5.5% 12.0%
60,000
100,000 40,000 20,000 50,000 0
5.0% 10.0%
(20,000) 0 (40,000)
4.5% 8.0%
4.0% 6.0%
(60,000) (50,000) (80,000) 3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 3Q 18 17
2Q 3Q 4Q 1Q 2Q 3Q 4Q 18 1Q 18 2Q 19 3Q 19 4Q 19 18 17 18 18 18 18
Deliveries Deliveries
(100,000) (100,000)
1Q 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Medical Center office submarket is located three miles southwest of the CBD and is a specialty market focused heavily on the healthcare sector. More than two-thirds of the office product in this submarket is considered medical office. Major medical institutions, such as the M.D. Anderson Cancer Center and Memorial Hermann Hospital, are among the top medical office tenants in this submarket. This submarket is home to the Texas Medical Center (TMC), a network of more than 50 hospitals, research institutions, and clinics. It is the largest medical center in the world, employing more than 100K people and admitting more than 6M patients a year. At the close of 3Q 2019, the submarket continued as the submarket with the lowest vacancy in the market at 5.9%. Absorption was negative with 15K SF given back, but leasing activity remained up with just below 80K SF of deals completed in 3Q. There are currently no construction projects underway but that should change with Medistar Corporation proposing Innovation Tower, a 48-story, 1.6M SF mixed-use development which is currently 77.1% pre-leased.
14
TOP LEASE TRANSACTIONS • Houston PSC has signed a 17K SF lease in Greenpark I. • J.T. Vaughn Construction has signed a 3K SF lease in Park Plaza Professional Building.
LARGE EXISTING VACANCIES • Texas Medical Center/7501 Fannin Street – 87,714 SF • Museum Medical Tower/1213 Hermann Drive – 70,076 SF
• 7505 Fannin Street – 54,878 SF • Houston Medical Plaza – 47,105 SF • Main Link Biotechnology Park/10301 Stella Link Road – 42,105 SF
• Greenpark II Professional Building/7505 Main Street – 28,224 SF
• Atrium 2656/2656 South Loop Freeway West – 27,301 SF
• Greenpark One/7515 South Main Street – 27,127 SF • Prosperity Bank Plaza/5020 Montrose Boulevard – 27,023 SF • 1200 Binz/1200 Binz Street – 26,6143 SF
14
KATY FREEWAY EAST SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
25,236
99,080
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
9.7%
11.0%
11.3%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
210,479
114,691 Delivered SF 102,474 Quoted Rates $33.94
200,334
213,287
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$32.35
$28.95
VITAL STATS
30.0% 23.0%
1,000,000 500,000
22.0%
800,000 300,000 600,000
21.0% 25.0% 20.0%
400,000 100,000
19.0%
200,000 (100,000)
20.0%
18.0%
0 (300,000)
17.0% 15.0% 16.0%
(200,000)
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
4Q 2Q 17 17
Absorption Absorption
1Q 3Q 18 17
2Q 4Q 18 17
Deliveries Deliveries
3Q 1Q 18 18
4Q 2Q 18 18
1Q 2Q 3Q 3Q 4Q 1Q 19 19 19 18 18 19
(500,000) (400,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Katy Freeway East office submarket benefits greatly from the demographics of the Memorial Villages. The submarket is centrally located along Interstate 10 and Beltway 8 near the Energy Corridor and the rapidly growing western suburbs. Katy Freeway East is an urban, mixed-use area thanks to two large developments, Midway Companies’ CityCentre and MetroNational’s re-envisioned Memorial City projects. Both developments offer different configurations of abundant amenities and mixed-use campuses with varying degrees of walkability that appeals to the emerging millennial workforce. The abundance of amenities and close proximity to the workforce is why this submarket commands higher than average rents, over $30.00/SF. The success of CityCentre and Memorial City have spurred a number of new developments including several medical office projects and Village Tower Plaza, located near Interstate 10 and Bunker Hill. At the close of 3Q 2019, the submarket continued having one of the lowest vacancy rates in the market at 9.7%. The submarket continues to be strong with more than 200K SF of positive absorption. Leasing activity was not as strong as the first half of 2019 with about 115K SF of deals completed in 3Q. There is currently more than 300K SF of class A office product under construction and several proposed projects in the works.
15
TOP LEASE TRANSACTIONS • WaterBridge Resources has signed a 24K SF lease in Memorial City Plaza.
• Limetree Bay has signed a 13K SF sublease in CityCentre Three.
DEALS IN THE MARKET • Town & Country Central I/10497 Town & Country Way – a 149,909 SF class A office building
NEW DEVELOPMENTS • 9753 Katy Freeway – a 161,280 SF class A office building
• 9655 Katy Freeway – a 150K SF class A office building LARGE EXISTING VACANCIES • One Memorial City Plaza/800 Gessner Road – 120,470 SF
• Memorial Hermann Tower/929 Gessner Road – 105,066 SF • CityCentre Two/818 Town & Country Boulevard – 81,511 SF • CityCentre One/800 Town & Country Boulevard – 77,610 SF • Three Memorial City Plaza/840 Gessner Road – 70,328 SF • MetroNational Memorial City/10100 Katy Freeway – 62,984 SF • Two Memorial City Plaza/820 Gessner Road – 62,222 SF • 952 Echo Lane – 60,451 SF • 10777 Clay Road – 56,871 SF • Medical Plaza 3/915 Gessner Road – 38,064 SF
15
SUGAR LAND SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(83,589)
90,352
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
12.4%
12.5%
10.8%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
209,121
178,137
vs. Prev. Qtr
vs. 12 Mths Ago
2,058
107,984 Delivered SF Quoted Rates $26.51
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$26.25
$26.35
VITAL STATS
14.0% 12.0%
125,000 250,000
200,000 75,000
11.0%
150,000 25,000
12.0%
10.0%
100,000 (25,000) 50,000
9.0% 10.0%
(75,000)
0 8.0%
8.0% 7.0%
(125,000) (50,000)
3Q 1Q16 16
4Q 2Q16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
4Q 2Q 17 17
Absorption Absorption
1Q 3Q 18 17
2Q 4Q 18 17
3Q 181Q 18
Deliveries Deliveries
4Q 182Q 18
1Q 193Q 18
2Q 194Q 18
3Q 19 1Q 19
(17 5,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Sugar Land office submarket in Southwest Houston is home to a variety of energy and engineering firms. The submarket is home to Fluor Enterprises, Schlumberger, Fairfield Technologies, and Nalco Champion. Other nonenergy tenants such as Coca-Cola, Imperial Sugar, and Kelsey-Seybold Clinic also have large presences in the submarket. The submarket continues to be a great suburban alternative to other major Houston office submarkets such as West Loop, Westchase, and Greenway Plaza with its vicinity to Houston’s growing population center and workforce. At the close of 3Q 2019, the submarket had a slightly lower vacancy rate of 12.4% with very little positive absorption of approximately 2K SF. Leasing activity was slightly lower than 2Q with more than 100K SF of deals completed. There is currently more than 175K SF of office product under construction with no space being delivered in 3Q.
TOP LEASE TRANSACTIONS • Applus+ RTD has signed a 17K SF renewal in Three Sugar Creek Center.
• Apara Autism Center has signed a 6.4K SF lease in 6914 Brisbane Court.
• Retina Consultants of Houston has signed a 4.5K SF lease in 6921 Brisbane Court.
• RightShip has signed a 3K SF lease in Sugar Creek on the Lake.
DEALS IN THE MARKET • Sugar Creek Place I/14100 Southwest Freeway – a 151,772 SF class B office building • 13927 South Gessner Road – a 87,720 SF class B office building
NEW DEVELOPMENTS • 800 Bonaventure Way – 87,500 SF of office condos set to deliver April 2020
LARGE EXISTING VACANCIES • Sugar Creek on the Lake/14141 Southwest Freeway – 125,821 SF • Sugar Creek II/13131 Dairy Ashford Road – 91,899 SF • Building A/1 Flour Daniel Drive – 85,927 SF • The Minute Maid Building/2150 Town Square Place – 54,812 SF • 12603 Southwest Freeway – 51,236 SF • 12808 West Airport Boulevard – 44,333 SF • Sugar Creek Place I/14100 Southwest Freeway – 42,386 SF • The Texas Drive Building/2245 Texas Drive – 37,597 SF • 7619 Branford Place – 34,732 SF • Comerica Bank Building – 34,582 SF • Commerce Green One – 14090 Southwest Freeway – 28,321 SF
16
16
CLEAR LAKE SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
11,824
10,952
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
15.6%
16.3%
16.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
126,371
162,612
vs. Prev. Qtr
vs. 12 Mths Ago
49,525
87,877 Delivered SF Quoted Rates $22.71
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$22.53
$21.85
VITAL STATS
18.0% 12.0%
90,000 250,000 70,000 200,000
11.0%
50,000
150,000 30,000
16.0%
10.0%
10,000 100,000 (10,000) 50,000
9.0% 14.0%
(30,000)
0 (50,000)
8.0%
(50,000) (70,000) 12.0% 7.0%
3Q 1Q 1616
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
4Q 2Q 17 17
Absorption Absorption
1Q 3Q 1817
2Q 4Q 1817
3Q 1Q 1818
Deliveries Deliveries
4Q 2Q 1818
1Q 3Q 1918
2Q 4Q 19 18
3Q 1Q 19 19
(90,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK Located southeast of the CBD, the Clear Lake office submarket is home to the Lyndon B. Johnson Space Center and an outsized share of government jobs. The reliance on NASA typically dictates demand for office space here. However, the submarket is also home to a diverse mix of industries. The area also boasts strong demographics given the high volume of NASA scientists, well-paid workers at the Houston Ship Channel, and related downstream industries who choose to live in communities close to the water. At the close of 3Q 2019, the submarket had a vacancy rate of 15.6% and positive absorption of about 50K SF. Leasing activity was quite strong for a submarket of this size with more than 85K SF of deals completed in 3Q. There is currently more than 70K SF of class A and B office product under construction in the submarket.
TOP LEASE TRANSACTIONS • Bureau Veritas has signed an 8.6K SF lease in Clear Lake I.
DEALS IN THE MARKET • Clear Lake Central/600 Gemini Street – a 363,050 SF class B office building
• Two Corporate Plaza/2625 Bay Area Boulevard – a 161,467 SF class A office building • One Corporate Plaza/2525 Bay Area Boulevard – a 114,838 SF class A office building
NEW DEVELOPMENTS • Tannos Land Holding/505 South Friendswood Drive – a 51,614 SF class A office building
• 1400 West Nasa Parkway – a 22K SF class B office building
LARGE EXISTING VACANCIES • Clear Lake Central/600 Gemini Street – 317,198 SF • Boeing/3700 Bay Area Boulevard – 85,176 SF • Hercules II/1290 Hercules Avenue – 64K SF • Atrium Crest/18333 Egret Bay Boulevard – 44,848 SF • One Corporate Plaza/2525 Bay Area Boulevard – 44,699 SF
• 2222 Bay Area Boulevard – 32,666 SF • 13100 Space Center Boulevard – 31,995 SF • Clear Lake I/1300 Hercules Avenue – 31,657 SF • Medical Plaza at Clear Lake/250 Blossom Street – 27,610 SF
• Space Park Office Building/2200 Space Park Drive – 26,984 SF
17
17
MIDTOWN SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(48,340)
(47,871)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
14.0%
11.5%
11.9%
10.5%
12.0% 12.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
10.0%
57,463
126,918 Delivered SF 35,363 Quoted Rate $28.59
175,372
112,701
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$29.29
$30.13
VITAL STATS
14.0% 18.0%
160,000 600,000 140,000
16.0%
500,000 120,000 100,000
400,000
80,000
300,000 60,000 40,000
200,000
20,000 0
8.0%
100,000
(20,000)
10.0% 6.0%
0
(40,000) (60,000) (100,000)
4.0%
(80,000)
2.0%
(200,000) (100,000) (120,000)
8.0%
0.0%
3Q 1Q16
16
4Q 2Q 16
16
1Q 3Q 17
16
2Q 4Q 17
16
Absorption Absorption
3Q 1Q 17
17
4Q 2Q 17
17
1Q 183Q
17
2Q 184Q
17
Deliveries Deliveries
3Q 181Q
18
4Q 18 2Q
18
1Q 2Q 3Q 19 3Q 19 4Q 19 1Q
18
18
Vacancy Vacancy
(300,000)
19
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Midtown office submarket is centrally located due west of CBD and has recently been dubbed the “Millennial Corridor”. The submarket includes the Heights to the north, Montrose/Museum District, Upper Kirby to the west, and Rice Village to the south. Further west along the Washington Corridor, the Midtown submarket has seen considerable interest from developers of all property types along Allen Parkway and Washington Avenue. Rice University, which owns the former Midtown Sears building, will spend a reported $100M to redevelop the historic art deco building into the Ion Innovation Hub. The project will be run by Station Houston, an innovative accelerator and will also contain creative retail amenities. Construction is expected to finish in late 2020. At the close of 3Q 2019, the submarket had a vacancy rate of 11.5% and positive absorption of more than 50K SF. Leasing activity was quite strong for a submarket of this size with just over 125K SF of deals completed in 3Q. There is currently more than 165K SF of office product under construction in Midtown.
18
TOP LEASE TRANSACTIONS • The City of Houston has signed a 31K SF lease in 601 Sawyer. • STPN Manager has signed a 3K SF lease in 5151 Katy Freeway.
DEALS IN THE MARKET • 3800 Washington Avenue – a 24K class B office building. • 2303 Smith/2303 Smith Street – a 23,373 SF class B office building • Washington Place Lofts/1716-1722 Washington Avenue – a 21,817 SF class B office building
NEW DEVELOPMENTS • River Oaks Medical/3720 Westheimer Road – a 130K SF medical office building
• Rethink Co-Working/1512 Center Street – a 37,046 SF class A office building
LARGE EXISTING VACANCIES • Wortham Tower/2727 Allen Parkway – 142,603 SF • Central Square/2100 Travis Street – 117,733 SF • HCC Building/3100 Main Street – 108K SF • America Tower/2929 Allen Parkway – 99,987 SF • 2000 Crawford/2000 Crawford Street – 56,358 SF • Buffalo Heights/3663 Washington Avenue – 35,363 SF • 55 Waugh Drive – 28,469 SF • 2800-2810 San Jacinto Street – 27,484 SF
18
SAN FELIPE/FOUNTAIN VIEW SUBMARKET INTELLIGENCE Absorption 13,740
vs. Prev. Qtr
vs. 12 Mths Ago
(66,357)
(6,412)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
19.7%
20.0%
19.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
74,788 Delivered SF Quoted Rate $28.37
100,650
250,278
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$28.14
$28.60
VITAL STATS
22.0% 12.0%
80,000 250,000 60,000
200,000 40,000
20.0% 11.0%
20,000 150,000 18.0% 10.0%
0
100,000 (20,000) 50,000 (40,000)
16.0% 9.0%
(60,000) 0 (80,000)
14.0% 8.0%
(50,000) (100,000) 12.0% 7.0%
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 3Q 18 17
2Q 184Q 17
Deliveries Deliveries
3Q 181Q 18
4Q 182Q 18
1Q 19 3Q 18
2Q 3Q 19 4Q 19 1Q 18 19
(120,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK Located just west of Galleria/Uptown, HLC’s Houston office submarket, San Felipe/Fountainview, is a smaller submarket with a premier location. Fundamentals here mirror a West Houston submarket and contain about 6M SF, providing tenants with a great alternative to the above-average rates of the West Loop submarket. At the close of 2Q, San Felipe/Fountain View had a vacancy rate of 20.2% with negative absorption of 66,357 SF. Leasing activity was fairly strong with more than 100,000 SF of deals completed in 2Q.
TOP LEASE TRANSACTIONS • Celltex Therapeutics has signed an 18.7K SF lease in Fountainview Tower. • CastleRock Communities has signed a 9K SF lease in Fountainview Tower. • Rio Energy has signed a 7.5K SF renewal in 5718 Westheimer. • DJP Diamonds has signed a 4K SF lease in Fountainview Tower.
DEALS IN THE MARKET • Woodway Office/7660 Woodway Drive – a 110,529 SF class B office building • 5300 Richmond Avenue – a 43,626 SF class B office building • Westglen Property/7915 Westglen Drive – a 22,424 SF class B office building
LARGE EXISTING VACANCIES • San Felipe Plaza/5847 San Felipe Street – 241,686 SF • 5718 Westheimer Road – 170,893 SF • 2000 Bering/2000 Bering Drive – 98,708 SF • 2603 Augusta Drive – 87,458 SF • 1616 South Voss Road – 54,632 SF • The Spectrum Office Building/5858 Westheimer Road – 54,581 SF
• 7500 San Felipe Street – 51,272 SF • Augusta Place/2400 Augusta Drive – 51,028 SF
19
19
WEST BELT SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
82,983
187,381
Vacancy
vs. Prev. Qtr
18.6%
18.7%
5,925
Leasing Act. 50,457 Delivered SF Quoted Rate $25.03
vs. Prev. Qtr 76,325 vs. Prev. Qtr
VITAL STATS
26.0% 18.0%
200,000 600,000
16.0%
150,000 500,000
vs. 12 Mths Ago
14.0% 24.0%
100,000
22.5%
12.0%
50,000
vs. 12 Mths Ago
10.0%
0
415,186 vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$25.77
$26.11
400,000 300,000
22.0%
200,000
8.0%
(50,000)
6.0%
(100,000)
100,000 0
20.0%
(150,000) (100,000)
4.0%
(200,000)
2.0% 18.0% 0.0%
(200,000)
3Q 1Q 16
16
4Q 2Q 16
16
1Q 3Q 17
16
2Q 4Q 17
16
Absorption Absorption
3Q 1Q 17
17
4Q 2Q 17
17
1Q 3Q 18
17
2Q 184Q
17
Deliveries Deliveries
3Q 181Q
18
4Q 182Q
18
1Q 19 3Q
18
2Q 19 4Q
18
3Q 19 1Q
(250,000) (300,000)
19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s West Belt office submarket houses nearly 7M SF of class A & B office product. The submarket spans a quartermile along the West Sam Houston Parkway, between Clay Road and Highway 249. The submarket’s proximity to the Energy Corridor makes it one of the most energy-driven office markets in Houston and is home to some of the newest vintage assets. Some of the largest tenants include GE Oil & Gas, Forum Energy Technologies, and Cameron International. With the submarket’s heavy concentration of energy related tenants, the West Belt submarket felt the oil downturn more than most other submarkets. However, the outlook for this submarket looks promising with its close proximity to the fastest-growing population center and workforce, making it an attractive office market for those who live nearby. At the close of 3Q 2019, the submarket had a vacancy rate of 18.6% with only small positive absorption of 6K SF. Leasing activity was lower than 2Q with just over 50K SF of deals completed in 3Q. There is currently no office product under construction and no space was delivered in 3Q.
TOP LEASE TRANSACTIONS • Gryphon Healthcare has signed a 13K SF lease in Concourse at Westway. • WellMed Medical Management has signed a 11K SF lease in Concourse at Westway.
DEALS IN THE MARKET • Heron Lakes (Seven Properties) – a 314,776 SF class A and B office park • Concourse at Westway/4700 West Sam Houston Parkway North – a 130,223 SF class B office building • York Centre/10235 West Little York Road – a 119,840 SF class B office building • 16060 Dillard Drive – a 24K SF class B office building
LARGE EXISTING VACANCIES • Westway II/4424 West Sam Houston Parkway North – 237,246 SF
• Beltway Lakes Phase III/5775 North Sam Houston Parkway West – 188,880 SF
• Westway One/11220 Equity Drive – 143,960 SF • Westway Plaza/11330 Clay Road – 131,663 SF • Building Two/11000 Corporate Centre Drive – 75,954 SF
• Tanner Office Building/11302 Tanner Road – 57,798 SF • Concourse at Westway/4700 West Sam Houston Parkway North – 56,604 SF • York Centre/10235 West Little York Road – 46,858 SF • Heron Lakes/10740 North Gessner Road – 41,688 SF • 4650 Westway Park Boulevard – 38,554 SF • Sam Houston Crossing One/10343 Sam Houston Park Drive – 37,665 SF
20
20
SOUTHWEST BELTWAY 8 SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
82,983
187,381
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
18.6%
18.7%
22.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
76,325
415,186
5,925
50,457 Delivered SF Quoted Rate $25.03
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$25.77
$26.11
VITAL STATS
24.0%
100,000
12.0%
250,000
80,000 60,000 200,000
11.0%
40,000
22.0%
150,000 20,000 0
10.0%
100,000 (20,000)
20.0%
(40,000)
50,000
9.0%
(60,000) (80,000)
0
18.0%
(100,000)
8.0%
(120,000)
(50,000)
(140,000) 16.0% 7.0%
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
Absorption Absorption
4Q 2Q 1717
1Q 3Q 1817
2Q 4Q 1817
Deliveries Deliveries
3Q 1Q 1818
4Q 2Q 1818
1Q 3Q 1918
2Q 4Q 19 18
3Q 1Q 19 19
(160,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s Southwest Beltway 8 office submarket extends southeast to the tip of Missouri City and northwest to the Buffalo Bayou, just west of the Energy Corridor. The submarket’s geographic boundaries extend much farther than those of neighboring West Houston submarkets but deliveries here have been significantly fewer than in other submarkets this cycle, partially due to its distance from the Energy Corridor. At the close 3Q 2019, the submarket had a higher than average vacancy rate of 22.5% with negative absorption around 5K SF. Leasing activity was strong for a submarket of this size with just over 85K SF of deals completed in 3Q.
TOP LEASE TRANSACTIONS • Jazz Communications has signed a 1.5K SF lease in The Center.
DEALS IN THE MARKET • American First Tower/9999 Bellaire Boulevard – a 211,587 SF class A office building • 11111 South Wilcrest Drive – a 190,398 SF class B office building • Westwood Green/9494 Southwest Freeway – a 139,529 SF class B office building • 6100 Corporate Drive – a 73,045 SF class B office building • 10710 South Sam Houston Parkway West – a 46,622 SF class B office building
LARGE EXISTING VACANCIES • Southwest Corporate Center/9700-9702 Bissonnet Street – 217,957 SF
• 11111 South Wilcrest Drive – 190,398 SF • Houston Technology Center/5959 Corporate Drive – 104,871 SF
• Centre I/9800 Centre Parkway – 78,904 SF • Westwood Green/9494 Southwest Freeway – 78,848 SF
• The Center/8323 Southwest Freeway – 71,328 SF • The Center/8303 Southwest Freeway – 67,997 SF • 9896 Bissonnet Street – 55,119 SF • The Ranchester Building – 48,640 SF • Park Green I/8300 Bissonnet Street – 43,427 SF • 14602 Presidio Square Boulevard – 42,716 SF
21
21
EAST HOUSTON/PASADENA SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(64,588)
(4,877)
87,658
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
14.0% 14.0%
13.1%
11.9%
12.6%
12.0%
vs. 12 Mths Ago
10.0%
Leasing Act. 79,729 Delivered SF
vs. Prev. Qtr 37,037
208,368
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
Quoted Rates
vs. Prev. Qtr
vs. 12 Mths Ago
21.53
21.18
21.92
-
VITAL STATS
16.0% 18.0%
600,000 114,000
16.0%
500,000
94,000
400,000 74,000
300,000
54,000
200,000
34,000
12.0%
8.0%
100,000
14,000
6.0%
0 (6,000)
10.0%
4.0%
(100,000) (26,000)
2.0%
(46,000) (200,000)
8.0% 0.0%
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17
17
4Q 2Q 17
17
1Q 3Q 18
17
2Q 4Q 18
17
3Q 1Q 18
18
4Q 2Q 18
18
Deliveries Deliveries
1Q 3Q 19
18
2Q 4Q 19
18
3Q 1Q 19
(66,000) (300,000)
19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s East Houston/Pasadena office submarket’s location has historically been driven more by industrial than office product. Fundamentals, though somewhat soft, were still healthier than many submarkets across the city. The submarket typically caters to tenants with smaller footprints. Therefore, the submarket was less negatively affected than other office submarkets. Demand has remained mostly positive since 2015, which has been beneficial to landlords. At the close of 3Q 2019, the submarket had a higher vacancy rate of 13.1% than in 2Q. Absorption was negative with just over 64K SF of space given back. Leasing activity was above average for a submarket of this size with almost 80K SF of deals completed in 3Q.
TOP LEASE TRANSACTIONS • Texas Bay Credit Union has signed a 7.6K SF lease in 12650 North Featherwood.
22
DEALS IN THE MARKET • North Houston Medical Plaza/7007 North Freeway – a 85,989 SF class B office building
• Texas Citizens Bank Building/4949 Fairmont Parkway – a 51,836 SF class B office building
• Medical Professional Building I/908 East Southmore Boulevard – a 41,778 SF class B office building
• 908 East Southmore Boulevard – a 41,778 SF class B office building
• Gullett & Associates Engineering/7135 Office City Drive – a 23,512 SF class B office building
• GSA at Office City Plaza/7141 Office City Drive – a 21,962 SF class B office building
LARGE EXISTING VACANCIES • 100 Pasadena Boulevard – 114,356 SF • 5616 Lawndale Street – 67,239 SF • North Houston Medical Plaza/7007 North Freeway – 51,306 SF • Atrium 10 Tower/11811 East Freeway – 31,023 SF • Original US Schlumberger HQ (1938)/2720 Leeland Street – 27,100 SF • 12621 Featherwood Drive – 26,820 SF • Bank of America Building/213 West Southmore Avenue – 26,583 SF • Bank of America East Freeway/12605 East Freeway – 26,514 SF • Bayshore Medical Building/3333 Bayshore Boulevard – 26,335 SF
22
NORTH LOOP WEST SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(36,557)
(70,959)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
22.9%
22.6%
22.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
(10,101)
94,688 Delivered SF Quoted Rates $25.33
168,869
127,177
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$24.54
$23.99
VITAL STATS
24.0% 12.0%
250,000 200,000 80,000
11.0% 22.0% 150,000 30,000
10.0%
100,000
20.0% (20,000) 50,000
9.0%
0 (70,000)
18.0%
8.0%
(50,000) 16.0% 7.0%
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
Absorption Absorption
4Q 2Q 17 17
1Q 3Q 18 17
2Q 4Q 18 17
Deliveries Deliveries
3Q 1Q 18 18
4Q 2Q 18 18
1Q 3Q 19 18
2Q 3Q 4Q 1Q 19 19 18 19
(120,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s North Loop West office submarket is located northwest of the CBD and is within the transitioning Heights and Oak Forest/Garden Oaks communities. This submarket consists of more than 6M SF with most of the largest office properties located along the western portion of Interstate 610 North Loop, which lends the submarket its name. There is also a concentration of older single-family homes converted into small office buildings along Heights Boulevard. At the close of 3Q 2019, the submarket had a vacancy rate of 22.9%. Negative absorption continued with more than 10K SF given back and leasing activity consisted of more than 94K SF of deals completed. There is currently about 90K SF of office product under construction.
TOP LEASE TRANSACTIONS • Van Leeuwen Pipe & Tube has signed a 2.4K SF lease in 1225 North Loop West.
• Houston Weight Loss Center has signed a 2K SF lease in Heights Health Tower.
NEW DEVELOPMENTS • The MKT/600 North Shepherd Drive – a 89,425 SF class A office park
LARGE EXISTING VACANCIES • Brookhollow Central II/2900 North Loop Freeway West – 182,815 SF
• Brookhollow Central III/2950 North Loop Freeway West – 131,096 SF • 2727 North Loop Freeway West – 123,103 SF • North Loop Center/1235 North Loop Freeway West – 73,343 SF • Brookhollow Central I/2800 North Loop Freeway West – 53,172 SF • 2600 North Loop Freeway West – 28,702 SF • Brookhollow II/9800 Northwest Freeway – 28,199 SF • 10050 Northwest Freeway – 27,480 SF • 2180 North Loop West – 25,547 SF • 12225 North Loop Freeway West – 24,787 SF
23
23
SUBMARKETBELLAIRE INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
22,313
52,304
Vacancy
vs. Prev. Qtr
15.5%
15.2%
(12,958)
Leasing Act. 141,618 Delivered SF Quoted Rates $25.47
vs. Prev. Qtr 32,138
VITAL STATS
18.0% 18.0%
600,000
16.0%
100,000 500,000
vs. 12 Mths Ago
14.0%
0
16.0%
12.0%
vs. 12 Mths Ago
10.0%
91,354
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$25.68
$21.19
16.0%
14.0%
400,000 300,000
(100,000)
200,000
12.0%
(200,000)
8.0%
100,000
10.0%
6.0%
0 (300,000)
4.0%
(100,000)
8.0%
(400,000)
2.0%
(200,000) (500,000)
6.0%
0.0%
3Q 1Q16
16
4Q 2Q 16
16
1Q 3Q 17
16
2Q 4Q 17
16
Absorption Absorption
3Q 1Q 17
17
4Q 2Q 17
17
1Q 183Q
17
2Q 184Q
17
Deliveries Deliveries
3Q 18 1Q
18
4Q 1Q 2Q 3Q 18 2Q 19 3Q 19 4Q 19 1Q
18
18
18
Vacancy Vacancy
(300,000)
19
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK Adjacent to the Galleria/Uptown and the Texas Medical Center, Bellaire is a smaller more mature office submarket. Like much of Houston, a significant amount of Bellaire’s inventory was delivered in the 1970s and 1980s. The area is home to many medical tenants as result of its proximity to the Texas Medical Center. At the close of 3Q 2019, the submarket had a lower than city average vacancy rate of 15.5% which is slightly higher than 2Q. Absorption was negative with nearly 13K SF of space given back. Leasing activity increased from 2Q with just over 140K SF of deals completed in 3Q. No office product was delivered nor are there any projects currently under construction.
TOP LEASE TRANSACTIONS • Houston Methodist Hospital has signed a 100K SF lease in 4800 Fournace Place. • BBC Chartering USA has signed a 17K SF renewal in West Loop I. • Greater Houston Interventional Pain Associates has signed an 8.7K SF renewal in The Offices at Pin Oak Park. • MedRecovery Solutions has signed a 4K SF lease in Bellaire Medical Plaza.
DEALS IN THE MARKET • 9009 West Loop South – a 472,847 SF Class B office building
• Southwestern AT&T/6500 West Loop South – a 351,030 SF Class B office building
• 4909 Bissonnet Street – a 20,586 SF Class B office building
LARGE EXISTING VACANCIES • 4800 Fournace Place – 305,202 SF • Houston Chronicle/4747 Southwest Freeway – 82,200 SF • Loop Central II/4848 Loop Central Drive – 51,652 SF • West Loop I/6565 West Loop South – 43,138 SF • Loop Central III/4828 Loop Central Drive – 39,166 SF • Loop Central I/4888 Loop Central Drive – 35,316 SF • Bellaire Medical Professional Building/6550 Mapleridge Street – 31,699 SF • West Loop II/6575 West Loop South – 29,263 SF
24
24
NORTHWEST/ HIGHWAY 290 CORRIDOR SUBMARKET INTELLIGENCE Absorption 68,801
vs. Prev. Qtr
vs. 12 Mths Ago
(23,106)
25,313
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
19.6%
21.2%
20.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
93,336 Delivered SF Quoted Rate $17.11
105,966
58,408
vs. Prev. Qtr
vs. 12 Mths Ago
32,174
-
vs. Prev. Qtr
vs. 12 Mths Ago
$16.93
$17.22
VITAL STATS
22.0% 12.0%
80,000 250,000
21.0% 11.0%
60,000 200,000 40,000
20.0%
150,000 20,000
10.0%
0
19.0%
100,000
(20,000) 50,000
9.0% 18.0%
(40,000) 0 (60,000)
17 .0% 8.0%
16.0% 7.0%
(80,000) (50,000)
3Q 1Q16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 3Q 18 17
2Q 184Q 17
Deliveries Deliveries
3Q 181Q 18
4Q 1Q 2Q 3Q 18 2Q 19 3Q 19 4Q 19 1Q 18 18 18 19
(100,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s Northwest/Highway 290 Corridor office submarket includes CoStar’s Northwest Near and Northwest Far submarkets. The struggles in this submarket over the past few years are primarily attributable to the extensive expansion and reconstruction of U.S. Highway 290 which has impacted traffic flow within the submarket. The 290 project is now complete, sparking an increase in activity to the submarket. A proposed bullet train terminal station at the nearby Northwest Mall by the Texas Central Railway, slated to connect Dallas and Houston, could help this submarket considerably if the project is approved. At the close of 3Q 2019, the submarket had a higher than average vacancy rate of 19.6% but is showing signs of improvement. Absorption has once again turned positive with about 70K SF of space absorbed. Leasing activity was strong nearly 100K SF of deals completed in 3Q which is only slightly lower than 2Q.
25
DEALS IN THE MARKET • Northwest Crossing II/7676 Hillmont Street – a 143,248 SF class B office building
• Automatic Data Processing/13141 Northwest Freeway – a 51,345 SF class B office building
LARGE EXISTING VACANCIES • Northwest Crossing III/13105 Northwest Freeway – 85,249 SF
• Northwest Crossing/13333 Northwest Freeway – 75,595 SF
• 13111 Northwest Freeway – 74,682 SF • Northwest One Building/13100 Northwest Freeway – 74,456 SF
• Wells Fargo Building/13201 Northwest Freeway – 71,231 SF • One Northwind Plaza/7600 West Tidwell Street – 58,613 SF • Granite Tower at 290/13430 Northwest Freeway – 56,394 SF • Automatic Data Processing/13141 Northwest Freeway – 50,880 SF
25
WEST SUBMARKETFARINTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(12,371)
46,012
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
14.0%
12.1%
10.8%
13.3%
12.0%
vs. 12 Mths Ago
10.0%
(51,680)
Leasing Act. 12,222 Delivered SF Quoted Rates $28.96
vs. Prev. Qtr 9,913 vs. Prev. Qtr
70,996 vs. 12 Mths Ago
-
31,562
vs. Prev. Qtr
vs. 12 Mths Ago
$28.02
$28.91
VITAL STATS
20.0% 18.0%
17 5,000 600,000
16.0%
500,000
18.0%
125,000
400,000 300,000
16.0%
75,000
200,000
8.0%
100,000
14.0%
25,000
6.0%
0
12.0% 4.0%
(25,000) (100,000)
2.0%
(200,000)
10.0%
0.0%
(75,000) 3Q 1Q16
16
4Q 2Q 16
16
1Q 3Q 17
16
2Q 4Q 17
16
Absorption Absorption
3Q 1Q 17
17
4Q 2Q 17
17
1Q 3Q 18
17
2Q 4Q 18
17
3Q 181Q
Deliveries Deliveries
18
4Q 182Q
18
1Q 193Q
18
2Q 3Q 19 4Q 19 1Q
18
Vacancy Vacancy
(300,000)
19
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s Far West office submarket includes CoStar’s Katy Freeway West/Grand Parkway submarket which is about 25 miles west of Houston’s CBD. Growth among all product types in West Houston has been a common theme and the office sector has been no exception, as it is located close to Houston’s fastest-growing population center and the expanded Grand Parkway. Nearly 80% of the metro’s population growth since 2010 has occurred in the unincorporated areas of Harris County covering parts of this and neighboring submarkets. Deliveries have slowed from their 2015 peak and demand has mostly kept pace. By the end of 3Q 2019, vacancies in the Far West submarket were in decent shape at 12.1% but are up almost 2% from 2Q. Absorption was negative just over 50K SF and quite a bit higher than 2Q. Leasing activity consisted of more than 12K SF of deals completed in 3Q. New development continues in the submarket with 200K SF of class A and B office product currently under construction.
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DEALS IN THE MARKET • Katy Commerce Center/1779 Westbourough Drive – a 26,984 class B office building
LARGE EXISTING VACANCIES • Mason Creek Office Center II/21700 Merchants Way – 127,953 SF
• Greenhouse at Park Row/2051 South Greenhouse Road – 65,627 SF • Methodist St. Catherine Plaza II/707 South Fry Road – 46,492 SF • Det Norske Vertias – Phase 2/1400 Ravello Drive – 45,666 SF • Building 2/2002 Grand Parkway North – 59,048 SF • Westgreen Professional Building/750 Westgreen Boulevard – 27,940 SF
26
SOUTHWEST FREEWAY SUBMARKET INTELLIGENCE Absorption (47,823)
vs. Prev. Qtr
vs. 12 Mths Ago
4,395
(10,082)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
25.3%
24.0%
24.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
81,633
56,564
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
vs. Prev. Qtr
vs. 12 Mths Ago
$16.23
$16.44
75,858 Delivered SF Quoted Rates $16.12
VITAL STATS
26.0% 12.0%
60,000 250,000 40,000
200,000 20,000
24.0% 11.0%
0
150,000 (20,000) 22.0% 10.0%
(40,000) 100,000 (60,000)
20.0% 9.0%
(80,000) 50,000 (100,000)
0 (120,000) 18.0% 8.0%
16.0% 7.0%
(140,000) (50,000) (160,000) 3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 3Q 18 17
2Q 184Q 17
Deliveries Deliveries
3Q 181Q 18
4Q 182Q 18
1Q 19 3Q 18
2Q 3Q 19 4Q 19 1Q 18 19
(180,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK The Southwest Freeway office submarket contains a small geographic area in Southwest Houston along Highway 59 South, extending as far north as the Westpark Tollway and as far south as Beechnut. This smaller office submarket consists of about 5M SF of class A and B office buildings. This submarket serves mostly tenants living in the South and West Houston communities. Given the aging inventory, attracting tenants to this submarket continues to be a challenge. Other nearby submarkets, along with the city’s overall flight-to-quality, have hurt the Southwest Freeway submarket. Fortunately, given the submarket’s location away from major Houston office submarkets such as West Loop, Westchase, and the Energy Corridor, this submarket continues to be a true value proposition for Houston-area businesses. At the close of 3Q 2019, the Southwest Freeway submarket had a vacancy rate of 25.3%, which continues to climb in this aging pocket. Absorption turned negative with around 47K SF of space given back. Leasing activity included just over 75K SF of deals completed in 3Q.
27
DEALS IN THE MARKET • Regency Square Tower/6200 Savoy Drive – a 225,371 SF class A office building
• Hillcroft Plaza/6065 Hillcroft Avenue – a 61,881 SF class B office building
• 7111 Harwin Drive – a 44,944 SF class B office building • 5999-6057 Savoy Drive – a 38,337 SF class B office building
LARGE EXISTING VACANCIES • Two Arena Place/7324 Southwest Freeway – 211,431 SF • One Arena Place/7322 Southwest Freeway – 139,669 SF • 7011 Southwest Freeway – 112,590 SF • 6464 Savoy Drive – 77,196 SF • Southwest Medical Plaza/7777 South US 59 Highway – 71,455 SF • Harwin International Plaza/7171 Harwin Drive – 63K SF • 5999-6057 Savoy Drive – 38,337 SF
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KINGWOOD SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(1,092)
1,367
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
12.6%
12.1%
14.9%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
39,508
13,692
vs. Prev. Qtr
vs. 12 Mths Ago
(12,726)
3,849 Delivered SF Quoted Rates $25.83
-
100,000
vs. Prev. Qtr
vs. 12 Mths Ago
$25.26
$25.44
VITAL STATS
16.0% 12.0%
250,000 140,000 200,000
14.0% 11.0%
90,000 150,000
12.0%
40,000 100,000
10.0% 10.0%
(10,000) 50,000
9.0% 8.0%
(60,000) 0
8.0% 6.0%
4.0% 7.0%
(110,000) (50,000)
3Q 1Q 16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
3Q 1Q 17 17
Absorption Absorption
4Q 2Q 17 17
1Q 3Q 18 17
2Q 4Q 18 17
3Q 1Q 18 18
Deliveries Deliveries
4Q 2Q 18 18
1Q 3Q 19 18
2Q 3Q 4Q 1Q 19 19 18 19
(160,000) (100,000)
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s Kingwood office submarket is located in Northeast Houston and situated between the Sam Houston Tollway and the Grand Parkway. This smaller outlying office submarket has seen a recent boost in development thanks to the Grand Parkway, Houston’s third loop. The submarket currently contains about 2.3M SF of class A and B office space. At the close of 3Q 2019, the submarket had an increased vacancy rate of 12.6%, up 0.5% from 2Q. Absorption remained negative with more than 12K SF given back and just under 4K SF of deals were closed in 3Q. There is currently more than 300K SF of office product under construction in the submarket which places this submarket in the top five of most active submarkets in Houston in construction.
28
NEW DEVELOPMENTS • 215 Kingwood Executive Drive – 41,230 SF LARGE EXISTING VACANCIES • Northeast Medical Tower II/18980 North Memorial Drive North – 83,244 SF
• Kingwood West Tower/22999 Highway 59 North – 31,906 SF
• Humble Medical Office Building/1485 FM 1960 Bypass East – 30,810 SF
• Professional Center at Kings Crossing II/2755 West Lake Houston Parkway – 20,470 SF
• Kings Harbor/4501 Magnolia Cover Drive – 18,703 SF • Three Kingwood Place/800 Rockmead Drive – 16,336 SF
28
SUBURBAN OUTLIERS SUBMARKET INTELLIGENCE Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
16,888
(572)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
11.4%
11.2%
10.8%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
56,076
38,938
vs. Prev. Qtr
vs. 12 Mths Ago
4,395
14,172 Delivered SF 24,230 Quoted Rates $25.78
61,000
-
vs. Prev. Qtr
vs. 12 Mths Ago
$25.78
$25.82
VITAL STATS
16.0% 12.0%
500,000 250,000 200,000 400,000
11.0% 14.0% 150,000 300,000 10.0%
100,000 200,000
12.0%
50,000
9.0%
100,000
10.0%
0
8.0%
0
8.0% 7.0%
(100,000) (100,000)
(50,000)
3Q 1Q16 16
4Q 2Q 16 16
1Q 3Q 17 16
2Q 4Q 17 16
Absorption Absorption
3Q 1Q 17 17
4Q 2Q 17 17
1Q 183Q 17
2Q 184Q 17
Deliveries Deliveries
3Q 4Q 1Q 2Q 3Q 18 1Q 18 2Q 19 3Q 19 4Q 19 1Q 18 18 18 18 19
Vacancy Vacancy
Source: CoStar 3Q 2019 Office Report
HLC OUTLOOK HLC’s Suburban Outliers office submarket consists of the remaining submarkets outside of the major Houston submarkets such as the CBD, Greenway Plaza, Westchase, and The Woodlands. These smaller submarkets are located on the outskirts of Houston and include more than 7.5M SF of class A and B office buildings. At the close of 3Q 2019, the submarket had a vacancy rate of 11.4% with small positive absorption of 4K SF. Leasing activity consisted of nearly 15K SF of deals completed in 3Q. There is currently more than 150K SF of class A and B office product under construction and 24K SF of space delivered in 3Q.
NEW DEVELOPMENTS • 17302 House & Hahl Road – a 75K SF class B office building.
• 10242 Greenhouse Road – a 50K SF class B office building.
• Building G @ Cross Creek Ranch – a 27K SF class B office building.
LARGE EXISTING VACANCIES • 4005 Technology Drive – 205K SF • Memorial Hermann Cypress MOB/27700 Highway 290 – 56,271 SF
• Oakbend Professional Building/1601 Main Street – DEALS IN THE MARKET • Magnolia Landmark Building/18230 DM 1488 Road – a 65K SF class B office building • Umar Syed Medical Tower/2802 Garth Road – a 50,946 SF class B office building • 32100 Dobbin Huffsmith Road – a 47,161 SF class A office building • 2401 Termini Street – a 38K SF class B office building • 9701 North Sam Houston Parkway – a 36K SF class B office building • Texas City Professional Building/2401 Palmer Highway – a 33,486 SF class B office building • NOV/10586 Highway 75 North – a 30K SF class B office building • The Offices at Greatwood/6514-6548 Greatwood Parkway – a 27,962 SF class B office building • 3100 Gulf Freeway – a 21K SF class B office building
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36,324 SF
• Sugar Land Medical Plaza II/17520 West Grand Parkway South – 35,291 SF
• Trinity Office Building/1920 Country Place Parkway – 29,904 SF
• 32100 Dobbin Huffsmith Road – 28,449 SF • 2401 Termini Street – 27,712 SF • Pearland Medical Commons Building Two/8540 Broadway Street – 25K SF
• Conroe Medical Office Building/1501 River Point Drive – 24,417 SF
• Northpoint Crossing Office Building/24445 State Highway 249 – 20K SF
• 2115 Winnie Street – 20K SF
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DALLAS
5950 Berkshire Lane Suite 900 Dallas, Texas 75225 T 972.241.8300 F 972.241.7955
FORT WORTH
1200 Summit Avenue Suite 300 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017
www.holtlunsford.com
HOUSTON
11451 Katy Freeway Suite 300 Houston, Texas 77079 T 713.850.8500 F 713.850.8550