The occupancy rate for class A and B space in downtown Houston is 95%. Current rates for the 40-million sf CBD range from $22 to $26 per sf for older office space and $28 to $30 per sf for new construction, Lee Goodwin, senior director, tells GlobeSt.com. Five years ago, rental rates in the CBD had been a mere $15 to $18 per sf, he says.
About 1.9 million sf is under construction and more are sure to follow. Until last year, "the last time there had been a construction crane in downtown was when the now Heritage Texas Plaza was built in 1985," says senior director Todd Mason. The CBD had gotten its jumpstart last year when Enron Corp. had broken ground on an office project.
What is behind the CBD revitalization? Companies such as Continental Airlines, Dynegy Inc. and Enron now recognize "the value of having their people in a centralized location with highly sophisticated buildings and communications that are only really available in a central business district," assesses Mason. He believes the CBD delivers an infrastructure simply not readily available elsewhere. Houston also is feeling the effect of sociological changes. More empty nesters and young professionals are headed to the convenience of downtown living. "Those people don't want to live in suburban America with a bunch of yards," says Mason. "They want to live closer in on smaller lots or in high-rises with less maintenance."
Mason recently has sold the CBD's old Ben-Milam hotel, which has been closed for almost 20 years. The hotel, nearly 100,000 sf, will be razed and a high-end condo project rise in its place, he reveals.
However, Houston's real ace is the energy sector, a recognized CBD stimulus. About half of its office space is dedicated to the energy field and the related professions that go along with it, from accountants to lawyers. "The trends would indicate that it should be strong (energy market) for two to three years," says Goodwin, "barring any unforeseen changes that would collapse energy rates." With Bush as president, it's a fairly good bet that Houston's economy will remain hardy thanks to the oil and gas market.
The brokers say the CBD's revitalization has lenders more willing to fund spec projects, although most still want one-third to half of the project leased before kicking in money. To Houston's credit, most of the class-A space is being developed by Crescent Real Estate Equities, Hines and TrizecHahn. They are sophisticated developers, emphasizes Goodwin, and would not start a project on pure speculation. Crescent had confirmed this strategy in a previous GlobeSt.com interview about its most recent purchase of a full block in the CBD.
With the CBD going strong, the Archdiocese of Galveston too has picked up on the momentum. Mason has just helped to hawk a parcel in Block 385, where the church plans a 14-story cathedral designed by architect Ziegler Cooper.
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