The downtown Houston office market is a hot topic these days. Recent months have seen a flurry of activity, whether it be leases, move-outs, or acquisitions. It’s no secret that the downtown market continues to be plagued by average vacancies painfully close to 20% and stagnant rents. With the thought that things will improve in the near future, investors have been purchasing properties in earnest. The fourth quarter news was encouraging, notably EPCO, Inc.’s acquisition of 1100 Louisiana, a building in which they have subsequently occupied 300,000 square feet. Also, Wells Real Estate Funds paid the highest per-square-foot price in the Houston office market’s history ($286 psf) for 5 Houston Center. Rumor has it that ChevronTexaco is interested in purchasing the remaining vacant former Enron building, while other energy companies have begun to reclaim shadow space downtown.
Unfortunately, the Central Business District’s recovery is anything but a slam dunk. Two major tenants, Burlington Resources and Bank One, are expected to vacate CBD space in 2006 after acquisitions by ConocoPhillips and Chase, respectively. In the same building Burlington is expected to vacate, Calpine Corp. reduced the amount of space they lease and subsequently lost naming rights to the former Calpine Center, now known by its address, 717 Texas.
Questions still remain about when the downtown office market will see a substantial improvement. It did not happen with the recent influx of New Orleans office tenants, as some thought it would. However, strong job growth has many experts predicting a healthy 2006 for the Houston office market overall, and with the positive fourth quarter numbers, it appears the market is moving in the right direction.
The office market had a relatively strong showing in the fourth quarter, absorbing 414,678 square feet (SF), the market’s highest quarterly absorption figure since the third quarter of 2004. Classes A and C reported positive absorption for the quarter, while all classes reported positive annual absorption, bringing overall annual absorption to 737,259 SF.
Patrick O'Connor, a designated member of the Appraisal Institute, is president of O'Connor & Associates. The firm, in business since 1974, specializes in real estate appraisals, research, and state and federal tax reduction services nationwide.
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