The office absorption setback was blamed on lingering effects of the Enron fallout, last year's flat job growth and corporate contractions, according to speakers at Grubb & Ellis Co.'s recent 2004 forecast meeting at River Oaks Country Club. Ace Schlameus, senior vice president in Houston, said even the two positives--417,740 sf in Westchase and 196,554 sf in Katy Freeway--were mitigated by the fact that only a few deals accounted for the bulk of the absorption.
Keith Lloyd, also a senior vice president, said deals are being struck at 10% to 20% below quoted rents. "Landlords have to compete at every level," he said. Class A rents dropped 4.9% to $21.82 per sf while class B dipped 4% to $16.76 per sf. And, concessions are plentiful when it comes to rent abatements, free parking and moving allowances.
But, Lloyd reported, there is one bright spot for building owners: sublease space is diminishing. The year ended with 4.3 million sf versus 5.5 million sf available in first quarter 2003.
According to Lloyd, the office market will hit rock bottom this year and begin to rebound in 2005. He believes CBD occupancies, now at 23%, could rise to 26% this year when the second empty Enron building hits the leasing market. Overall vacancy averages 19.7% in an inventory of nearly 155 million sf.
Senior vice president Logan Brown predicted another year of strong investment sales for the good performers, if interest rates stay low. The region's multifamily market accounted for most of the sales activity, recording more than $1.4 billion. Office sales exceeded $1 billion and retail raked in more than $600 million.
The brightest news came from Jim Kollaer, president and CEO of the Greater Houston Partnership as well as a Grubb & Ellis alumni, who predicted 31,000 jobs will be created in Houston this year, mainly in the healthcare sector. He presently is working on 285 leads for company relocations and has another 54 proposals out to corporations weighing moves, but decisions are 18 to 24 months away.
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