The Houston Office Market 2010

by CoyDavidson on December 19, 2010

The Deals and Stories that made Headlines in 2010

2009 was the year the great recession arrived in Houston and made its impact felt on the Houston office market as leasing activity screeched to a halt. As we began the New Year, there was hope as the last major city to enter the recession that we might also be the first to exit. That’s just how we roll in Texas.

Energy Mega-Tenants Stir Up the Houston Office Market

As the year began credible rumors that Houston’s two biggest office tenants Exxon-Mobil and Shell were mulling major office space decisions created a significant buzz and optimism that leasing activity was picking up. The real estate community was speculating in the media that Exxon-Mobil planned to buy roughly 400 acres in the Houston area, to consolidate thousands of employees from Houston and Virginia in a large corporate campus. The highly secretive Exxon-Mobil only public comment was they were conducting a comprehensive study of their real estate globally that was expected to last into 2011.

The whispers were also getting louder that Shell was evaluating their office space needs in the CBD and was negotiating to take the Reliant Energy sublease space at 1000 Main. In September the rumor proved true as they inked a lease for approximately 300,000 square feet at RRI Energy Plaza taking over the former trading floor of Reliant Energy. This was considered the first of several decisions Shell would be making concerning 2 million square feet of office space the company leases in the CBD.

In October, the Exxon-Mobil rumors resurfaced and speculation centered on a tract of land just south of the Woodlands that Exxon-Mobil acquired from developer Coventry Development Corp, who formally announced Springwoods Village a major master planned development with a significant office component. The consensus opinion today is the announcement of an Exxon-Mobil campus on this site is a matter of “when” and not” if”.

Anadarko Acquires Headquarter Campus

Anadarko spent 2010 making a lot of headlines for their involvement with British Petroleum in the Gulf Oil Spill which was Houston’s biggest business news story of the year. However, CEO James Hackett made news first when he revealed in its 4Q 2009 Earnings Conference Call the independent oil and gas concern had acquired its previously leased headquarters campus buildings located in the Woodlands for $215 million. Anadarko’s campus includes an 818,000 square foot, 30-story tower at 1201 Lake Robbins Drive, a 232,000 square feet mid-rise at 1200 Timberloch Place, parking garage and 14.5 acres allowing for expansion.

KBR Scraps West Houston Campus Plans and Stays Downtown with Huge Lease Commitment to Brookfield

The other big corporate office campus to make news in 2010 was the one that did not happen. Engineering and Construction giant KBR in 2008 announced they would be relocating their headquarters and leasing 910,000 square feet in a new corporate campus to be built in West Houston. The big news came when KBR scrapped their West Houston Campus Plans and announced they would be staying downtown. KBR extended and expanded lease commitments at KBR Tower for 883,487 square feet and 291,536 square feet at Cullen Center bringing their total lease commitment to 1,182,023 square feet with Brookfield Office Properties in the Central Business District.

3 Key Events Cast a Shadow of Uncertainty over the Houston Office Market

By May, any optimism that the Houston office market might make an early recovery dissipated as then national economy continued to struggle for momentum even though the recession was officially declared as over. In addition to the national economy, three key issues were causing a black cloud to form over the Houston office market. Earlier in the year, President Obama presented his new budget and vision for NASA and it did not look promising for the Johnson Space Center. The president’s budget called for an end to the Constellation program and it sent Houston Business leaders and Texas Lawmakers scrambling to protect Houston area job losses projected to be as much as 7,000.  Ultimately a compromise was reached among Congressional Leaders and the Obama Administration which is expected to mitigate job losses among NASA employees and major aerospace contractors, The net impact of the compromise is fuzzy but currently large blocks of office space in the Clear Lake area back on the market that were previously occupied by NASA contractors.

Companies that fly aircraft at a little lower altitude were also casting a shadow upon the Houston office market. Houston based Continental Airlines and Chicago based United Airlines were in serious merger negotiations and the general consensus was that Chicago would end up as the home of the merged airlines. As expected the merger was completed, and Houston will be losing a major corporate headquarters.

On April 20th there were reports of an incident in the Gulf of Mexico. The news of the B.P. Horizon disaster certainly received significant media attention and without a doubt didn’t go unnoticed in the “Energy Capital of the World”, but at the time the magnitude of the disaster was not known. Ten days after the event, the U.S government instituted a moratorium on deep water offshore drilling, and as the efforts to cap the well drug on, the commercial real estate community began to ponder what impact the spill might have on the Houston, the epicenter of the offshore drilling industry.

Hines Snags a Lead Tenant for MainPlace and the Big Lease Returns

In May, Hines held a topping out event for the brokerage community as it neared completion of Main Place, a new 46 story, 972,474 square foot office tower in Houston’s Central Business District. At the time KPMG was the only tenant secured for the new LEED® Silver project who had committed to occupy 108,000 square feet. In October, Hines announced it had secured another major tenant for MainPlace signing BG Group plc to a 164,000 square foot lease to serve as the British natural gas firm’s U.S.-based headquarters

The BG Group lease was just one of several significant lease transactions that occurred in the second half of the year as the big office lease returned to the Houston marketplace including:

  • Mustang Engineering’s 248,872 SF lease renewal at Ten West Corporate Center II in the Energy Corridor
  • Nabors Corporate Services 205,000 SF lease renewal at One Commerce Green in Greenspoint
  • Southern Union’s relocation to Galleria Tower II for 193,000 SF
  • McDermott’s 190,000 SF lease renewal at One Eldridge Place in the Energy Corridor
  • Akers Solutions consolidation of 130,317 at Pinnacle Westchase; and
  • Suez Energy’s 130,836 SF Lease Renewal at Post Oak Central III in the Galleria

Weatherford Leases 2000 St. James Place

In September, Weatherford International leased the entire 12-story, 335,000-square-foot office building at 2000 St. James Place in the Galleria. The Swiss-based oil-field service company will consolidate its Houston-based corporate support and regional management offices into the building. Core Real Estate LLC, also Houston-based had the building under contract from Wells Fargo at the time of the lease and planned an extensive renovation before Weatherford relocates in early 2012. The property was formerly the home of Minute Maid’s corporate headquarter before they relocated to Sugar Land.

Invesco Renews at Greenway and a Blockbuster Office Sale Downtown Ends the Year

2010 ended with news of the second largest office lease of the year and the second most expensive office sale in Houston history. In November, Invesco the Atlanta-based Investment management firm opted to stay put in Greenway Plaza signing Houston’s second largest office leases for 2010. Invesco, which has its biggest office in Houston, agreed to lease 387,345 square feet in the 745,956 square foot, 11 Greenway Plaza for another 10 years to house its 1,400 employees.

Brookfield Office Properties made big news at the beginning of the year by keeping KBR in the CBD and renewing and extending a lease that was the largest lease transaction of the year. They also ended the year making big news. In early November word leaked that Brookfield had placed Heritage Plaza under contract and was on the verge of acquiring the downtown Houston trophy asset from Atlanta based Goddard Investments. In December Brookfield announced a successful acquisition of the 53 story, 1.2 million square foot Heritage Plaza in the CBD at a net sales price of $321.5, making it the second highest sales price paid for an office building in Houston history.

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