The report states that while demand has been strong for office space in nearly all of the suburban submarkets, single-story flex space has become a new source of competition with lease rates at $3 to $5 below the average for class C product. Marcus & Millichap defines single-story flex space as that which "combines some of the features of office space with the flexibility to house showrooms or warehousing."

The report also is bullish on continued investor interest in the Houston office market. "Strong oil and gas exploration activity is creating solid demand for office space, offsetting some of the setbacks suffered by the high-tech industry," says Marty McAdams, regional manager. "The combination of the strong local economy and lower interest rates will maintain investor interest in the Houston office market at least through the end of the year.