Big Blocks Dwindle in the Houston Office Market

by CoyDavidson on February 10, 2012

Uptown Houston

Energy Companies are Snapping Up Large Blocks of Office Space

The Houston office market absorbed 2.6 million square feet of office space in 2011 and a flurry of big deals in 2011 and early 2012  has shrunk the number of large blocks of quality office space available to larger users. The primary driver is the energy as oil and gas companies are expanding their workforces due to higher oil prices and the shale exploration boom. Over the last 12 months Houston has seen major lease transactions and building acquisitions from the likes of Shell, Noble Drilling, Chevron and Talisman Energy to name just a few and the announcement of new office campus development and expansions from Exxon Mobil and Anadarko Petroleum. Also, word on the street is that another oil and gas major is under “Letter of Intent” to take down the largest block of Class A space currently available. The expansion trend expands beyond the majors to smaller independents and all the service companies that support oil and gas exploration and is expected to continue throughout 2012.

Big Blocks are Disappearing

Currently and certainly subject to change there are 16 Class A office project with in excess of 100,000 square feet of contiguous space available and 93 buildings with 20,000 square feet of contiguous space available which is roughly the size of one floor in most office buildings. If you add Class B project to the mix their are another 14 office projects that could satisfy a 100,000 square foot space requirement.

Smaller Users Begin to Feel the Impact

Many of the major office users have made their real estate plays in the last 18 months taking advantage of the softer market conditions before rates trend upward and concessions disappear, so we may see the number of blockbuster leases level off. However, users in the market over the next 12-18 months seeking 1-3 floors may discover the number of quality options are shrinking with rental rates trending upward and the less attractive concessions being offered, particularly in the core submarkets where leasing activity is brisk.

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