Houston’s Top Office Submarkets
Houston’s office market has been a strong performer in terms of weathering the recession and most industry observer’s project strong performance going forward as we move through the natural market cycle. As more Office Building Investors look at Houston as a location to place capital, which submarkets are poised to demonstrate the best market performance in the next ten years?
The Houston office market is typically segregated into 26 separate submarkets and while everything outside of the CBD is technically a suburban market, I have broken the top submarkets down into two categories; The Urban Core and Suburban Markets. The Greenway Plaza and Galleria-West Loop submarkets proximity to the CBD and geographically central location within the entire Houston area classify these office clusters as part of the “urban core”.
The Urban Core
Central Business District (CBD)
The CBD’s high proportion of Class A office inventory makes the submarket a favored location for many Fortune 1000 companies, Energy Concerns, Financial Institutions and Law firms. Over 70% of the CBD’s total office inventory of 37 million square feet is classified as high profile office building owners such as Hines, Brookfield Office Properties and Crescent maintain substantial holdings in Houston’s CBD, which speaks volumes to the perception of Downtown Houston’s perceived ability to continue to attract high quality office tenants. As companies continue to migrate back to the urban core, Houston’s CBD will continue to shine.
The Greenway Plaza submarket is anchored by the ten building-4.2 million square foot complex that bears the submarket’s name. All though the entire submarket consists of only 9.6 million square feet its proximity to Downtown just miles southwest of the CBD and the fact it bisects two of Houston’s most prestigious neighborhoods, River Oaks and West University make Greenway Plaza a favored location of many corporate office tenants.
Galleria / West Loop
The Galleria/West Loop submarket’s 22.2 million square feet of office inventory, premier shopping centers and high quality hotels serves the role as a satellite central business for the Houston metropolitan area and is the 17th-largest business district in the United States. The Galleria / West Loop like the CBD boasts a high percentage of high quality office space with over 70% of the total office inventory classified as Class A.
The Energy Corridor
A favorite of the oil and gas industry, the Energy Corridor is located along Interstate 10 between Beltway 8 and the Grand Parkway and is home to many multi-national and local growth-oriented companies. The Energy Corridor is the fourth largest employment center in the region with more than 73,000 employees. The Energy Corridor (Katy Freeway-West) contains 22.1 million square feet of office inventory of which 12.9 million square feet is classified as Class A.
The Woodlands is widely considered as one of the top master planned communities in the United States and a model community in terms of creating a highly attractive place to both live and work. Though it began as a suburban development and a bedroom community, it also has attracted corporations to the area such as Anadarko Petroleum Corporation, Baker Hughes, CB&I, US Oncology and Hewitt Associates who occupy significant corporate campuses. The Woodlands only contains approximately 5.9 million square feet of office inventory. However, though not formally announced yet, Exxon-Mobil is preparing a site just south of The Woodlands that expected to be the location of a 3 million square foot corporate campus for the energy giant.
Best of the Rest
The Westchase submarket has historically been a strong performer and Class A Buildings located on or near Beltway 8 continue to exhibit strong market fundamentals. The area’s 7.9 million square feet of Class A inventory boasts some of the healthiest rental rates in the Houston area.
The Sugar Land office submarket only contains 5.5 millions square feet of total office inventory and currently has a vacancy rate in excess of 20% primarily due to Chevron Texaco vacating a large block of space. However historically Fort Bend County has been one of the fastest growing counties in the country with strong job growth and there is no reason to think this trend won’t resume as we emerge from the recession.
View my Houston Office Market Report for more details.