The CBD absorbed 213,000 sf. "There hasn't been a lot of positive absorption in Downtown in a long time," Sanford Criner, executive vice president at CBRE/Trione & Gordon, tells GlobeSt.com. The Energy Corridor on the west side racked up 256,000 sf of positive absorption to end the quarter with a class A vacancy of just 7.1%. The other suburban markets, though, backslid a combined 251,000 sf in Q2, ringing up a 14.1% vacancy.
Nonetheless, Criner says the market is slowing turning. "I believe that we've seen the worst of it," he says of the 180-million-sf office inventory, "and we should see a slow, but deliberate recovery here in the Houston office market."
Phantom space has had an impact in the market. "In the last three years, that has happened here in the merchant energy business," Criner says, citing El Paso Corp.'s buyout of Coastal as a good example. Coastal, a merchant energy trader, "had a meltdown when their energy trading model was not working," he says. "El Paso wound up with a lot of phantom space and then proceeded to consolidate a number of people from some suburban Coastal buildings into El Paso's Downtown headquarters. It didn't increase the occupancy of Downtown. ... However, their former suburban space now has become excess space and is currently on the market for sublease."
With the Houston office market still 50% reliant on the energy sector, the windfall from jobs has yet to materialize. "Notwithstanding, the high commodity prices in the energy business this year, there's been very little hiring in Houston," Criner assesses of the city's mainstay economic driver. "Our business is a reflection of job growth. Recently there has been very little net demand for space."
Negative absorption year to date is almost 1.5 million sf. The blame is being laid squarely on Enron emptying 1.2 million sf for 225,000 sf and 600,000 sf going dark as tenants renewed and downsized.
On the construction side, about 15 million sf has delivered in the last five years. "That's not a lot by standards in other parts of the country," Criner says. "However, it is a lot considering there was almost no construction done here in the preceding 10 years." Houston consequently is battling a slight, but not overly dramatic overbuilt market, he says.
The second quarter's high point was the win of Citgo Petroleum Corp.'s headquarters from Tulsa, OK. "It is a point of pride for the City of Houston to get a new headquarters moving here like Citgo. It's good to see the energy industry consolidate to Houston," Criner says, citing leads by others like locally based Conoco Phillips International Inc. and ChevronTexaco Corp. of San Ramon, CA to use the city as a main port for corporate and regional office functions.
Citgo's takedown of 250,000 sf at 1293 Eldridge Parkway isn't going to greatly affect the market, Criner explains, but the long-term impact and other companies sure to follow certainly will. He says the shuffle of space of Citgo and Cambridge, MA-based Aspen Technology Inc., now prepping to leave Eldridge Parkway, is driving a net absorption of about 100,000 sf.
Not to be overlooked was the second-quarter news that Sysco Systems will build new buildings in the Energy Corridor. "Sysco has been growing very fast. They will totally occupy two buildings, which will not come on line until 2006 and 2007," he says.
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