Sanford Criner, executive vice president and principal of Trione & Gordon ONCOR International, tells GlobeSt.com that new construction is looking to fetch rates in excess of $32 per sf plus parking. In some cases, this is a $10 per sf differential from suburban rates. But, he says, the ease and strong history of the city's suburban office space is a natural lid to CBD rental rates. If rates get too steep, tenants historically head for the suburbs.
The new supply in downtown's class-A office space will increase 10%, but it's already 78% pre-leased to existing CBD tenants, explains Criner. Thus, move-ins to 5 Houston Center, Enron Tower and 1000 Main will merely serve to open up additional class-A space. "There will be some excess space in downtown at some point," he says. But it's definitely not a crisis and not a return to the mid-1980s when the CBD had doubled in size in four years to create staggering vacancies.
Robert Kramp, regional manager of client services at Grubb & Ellis Co., points out that most of the new buildings, namely 5 Houston Center, Enron Tower and 1000 Main, are not due to deliver for another two years. By that time, Houston's continued job growth will have sparked the demand to fill the new space. In the one-year period from February 2000 to 2001, there had been 59,600 jobs created in the city.
Kramp also says last year's record revenues for companies such as Continental Airlines, Chase Bank of Texas and Reliant Energy are indicators that the demand is there for the new office supply. The buoyancy of the residential real estate market in the inner loop also bodes well for CBD growth.
Kramp, like Criner, believes that $32 per sf rental rates and higher won't fly when the 2.6 million sf comes on line. Grubb & Ellis reports class-A, CBD rental rates are riding at $25.96 per sf, Trione & Gordon places the rate at $25.06 per sf. Although 5 Houston Center reportedly is asking $30 per sf, the negotiated rate will be lower, says the CBD's staunch believer who says that market will continue to be the city's top performer.
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