2q`15 market summary

Transcription

HOUSTON, TX METRO AREA
2Q’15 MARKET SUMMARY
Cresa Houston
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Houston, Texas 77056
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TABLE OF CONTENTS
01
MARKET AT-A-GLANCE
02
RENTAL RATES & VACANCY
03
LEASING ACTIVITY
04
CONSTRUCTION & DELIVERIES
05
NET ABSORPTION
06
SUBMARKET SNAPSHOTS
07
HOUSTON ECONOMY
08
MARKET OUTLOOK
Information contained herein is provided, in part, from third party sources including: CoStar
Group, Greater Houston Partnership, Bureau of Economic Analysis, Bauer College of
Business, University of Houston - Institute for Regional Forecasting, U.S. Census Bureau,
Perryman Group, Institute for Supply Management – Houston, Houston Association of
Realtors, National Association of Realtors, C2ER Cost of Living Index 1Q’2014, Baker
Hughes U.S. Rig Count Reports.
Even though obtained from sources deemed reliable, no warranty or representation,
expressed or implied, is made as to the accuracy of the information herein.
01
TENANT’S PERSPECTIVE
Landlord concessions continue to increase in
order to remain competitive and retain tenants,
especially in the west Houston submarkets.
HOUSTON MARKET
AT-A-GLANCE
Absorption turned negative in many key
submarkets, and while face rates remained high,
actual rates decreased, as did leasing activity.
As the prolonged drop in the price of oil continues, the office
Houston has experienced a shift that is favorable
for tenants, although tenants are still holding off
on making large commitments on space.
market has seen a shift in fundamentals that are tenant favorable,
including lower rates and increased tenant concessions such
MARKET TRENDS
as longer periods of free rent, free parking, and larger tenant
A tempered economy is implied via economic
indicators including decreases in construction
permits, the North American rig count, export activity,
the PMI index, and local vehicle and home sales.
Some segments in the economy provide confidence
in a return to normalcy in 2016– a low unemployment
rate versus that of the U.S., and the stabilization in
the drop of rig counts and the U.S. economy.
improvement allowances. Worldwide job cuts, reduced capital
budgets, reduced exploration expenditures, and M&A activity
continues, adding to the already large number of subleases and
empty blocks of space – although the pace of such activity
slowed in 2Q’15. Experts are now divided as to whether Houston
will experience a major downturn. Going into the quarter most
13.1 million SF is under construction throughout
Houston, which will add space to inventory over the
next few years and increase vacancy, thus driving
landlord concessions even further.
economists were cautiously optimistic. Now, many feel that
Houston faces weakness in various sectors – indicative of a
softer economy coming out of the quarter
RECENT TRANSACTIONS
RENTAL & VACANCY RATES
Avg. Rate
Vacancy Rate
$45.12
CBD: Class A
$28.02
CBD: Class B
$41.38
CBD: Class A + B
New
$33.11
Suburban: Class A
Katy Freeway
New
$21.21
Suburban: Class B
79,566
Sugar Land
New
$27.00
Suburban: Class A + B
Veterans Evaluation Services
75,722
Northwest
New
Zachry Group
49,024
Westchase
New
$35.45
Houston: Class A
U.S Physical Therapy
40,000
Westchase
New
$21.62
Houston: Class B
Newmark Grubb Knight Frank
38,000
Galleria
New
$28.88
Houston: Class A + B
Tenant
Size
Submarket
Type
Transocean
255,413
Greenway Plaza
Renewal
IHI E&C
171,426
Katy Freeway
New
Stage Stores
168,901
Galleria
New
Mattress Firm Holding Corp.
123,836
Southwest
New
CB&I
100,000
Westchase
CEMEX USA
80,000
United Way of Greater Houston
Margin from Q1
0.4%
9.5%
16.7%
11.9%
11.6%
12.9%
12.3%
3.4%
1.4%
1.0%
0.0%
0.5%
0.9%
11.1%
13.3%
12.2%
0.4%
0.6%
01
HOUSTON MARKET AT-A-GLANCE
MAJOR SUBMARKET STATS | CLASS A + B OFFICE
Inventory SF
Direct
Rate
Sublease
Rate
Direct
Vacancy
Sublease
Vacancy
Leasing
Deals
Leasing
SF
Absorption
Qtly
Absorption
2014
SF
Delivered
SF Under
Construction
CBD
47,160,963
$41.38
$28.71
11.9%
1.6%
27
138,908
(645,334)
234,829
0
1,578,258
Suburban
213,470,143
$27.00
$25.24
12.3%
0.9%
571
2,543,862
1,079,796
8,678,784
3,509,581
11,555,046
E Fort Bend Co/Sugar Land
8,487,910
$24.50
$20.48
11.3%
0.5%
21
131,775
130,938
324,839
11,648
143,624
FM 1960
13,121,728
$19.86
$19.41
12.7%
0.4%
56
84,887
737,837
208,099
770,000
212,400
Galleria/West Loop
28,337,492
$33.07
$30.29
11.3%
0.9%
69
468,967
(412,201)
526,185
0
1,237,021
North Belt
12,362,940
$23.98
$16.69
24.6%
3.2%
20
65,840
(176,974)
(332,150)
0
68,950
Greenway Plaza
10,501,920
$33.47
$23.70
8.4%
0.2%
37
372,217
(21,525)
135,924
0
858,275
Katy Freeway
36,064,125
$31.79
$25.18
11.1%
1.8%
99
546,617
(231,489)
2,688,346
1,512,824
3,220,113
Midtown
6,515,272
$30.54
$24.56
10.3%
0.0%
17
34,023
75,500
91,915
0
167,562
Northwest
13,900,544
$22.54
$20.67
16.9%
0.5%
33
201,657
(25,557)
297,193
315,441
0
South Main / Medical Ctr
9,305,070
$27.64
$20.22
10.7%
0.0%
10
41,456
21,197
132,430
0
0
Westchase
16,136,218
$30.33
$33.69
10.4%
1.7%
52
198,281
73,885
526,931
0
1,545,000
Woodlands
17,107,941
$29.84
$30.93
6.6%
0.5%
31
106,299
376,971
3,240,242
515,900
1,579,895
Other Suburban
41,628,983
$20.45
$25.50
13.6%
0.1%
122
254,732
531,214
891,997
383,768
2,522,206
260,631,106
$28.88
$25.78
12.2%
1.0%
598
2,682,770
434,462
8,913,613
3,509,581
13,133,304
Submarket
Total
FM
OR
TH BE
LT
N
SUBMARKET MAP
$23.98
24.6%
1960
W
THE
$22.54
16.9%
OODLA
$29.84
6.6%
DS
T H WES
N
OR
T
N
$19.86
12.7%
T Y F WY
KA
$33.07
11.3%
RE
$33.47
8.4%
E. F
CENT
$27.64
10.7%
ER
ED
M
ID T O WN
$30.54
10.3%
AREA OVERVIEW
$
Rental Rate
%
Vacancy Rate
BEND
$24.50
11.3%
CO
O
RT
$41.38
11.9%
E N WA
M
$30.33
10.4%
CBD
L L E RI A
G
TCHAS
GA
Y
ES
E
W
$31.79
11.1%
02
RENTAL RATES
& VACANCY
Overall, rental rates for Class A and B citywide are holding
steady but starting to see small decresases in some key
submarkets. Demand for space has slowed considerably
and citywide vacancy increased by 2.3% (230 basis points)
year-over-year to 12.2%.
RENTAL RATES
• Rental rates are the highest they have been in Houston’s history.
• Rates have seen a 3.3% year-over-year increase, from $27.96
PSF gross in 2Q’14 to $28.88 in 2Q’15. Between 1Q’15 and
2Q’15, there was a modest 1.7% ($0.50) increase in rates.
• Year-over-year Class B rates showed the largest increase of
3.5% to $21.62 PSF gross; Class A rates increased by 1.7% to
$34.45 PSF gross.
• In 2Q’15, the highest rates were found in the central submarkets
(the CBD, Greenway Plaza, Galleria/West Loop) and out west
(Katy Freeway and Westchase).
• The submarkets that experienced a decline in rental rates
over the past year include E. Fort Bend County/Sugar Land,
Westchase, and North Belt.
VACANCY
• Citywide, in Class A and B buildings, vacancy rates increased
by 2.3% (230 basis points) year-over-year to 12.2%; quarterover-quarter, vacancy rates increased by 0.6% (60 basis points).
• At 21.2% for Class A and B, the vacancy rate is 9.6 percentage
points above the citywide five-year average of 11.6%.
• Year-over-year, Class A and B vacancy rates both increased.
• In 2Q’15, the lowest vacancy rates (below 10.5%) were in
Woodlands (6.6%), Greenway Plaza (8.4%), Midtown (10.3%),
and Westchase (10.4%).
02
HISTORICAL DIRECT AVERAGE RATES
HISTORICAL TOTAL VACANT AVAILABLE
$40.00
18%
$35.00
16%
14%
$30.00
12%
$25.00
10%
$20.00
8%
$15.00
6%
$10.00
4%
$5.00
2%
0%
$0.00
2Q ‘08
2Q ‘09
2Q ‘10
2Q ‘11
Class A
2Q ‘12
Class B
2Q ‘13
2Q ‘14
2Q ‘15
2Q ‘08
2Q ‘09
2Q ‘10
Class A
Houston Average Rate
SUBMARKET RENTAL RATES 2Q’15
2Q ‘11
2Q ‘12
Class B
2Q ‘13
2Q ‘14
2Q ‘15
Houston Average Rate
SUBMARKET VACANCY RATES 2Q’15
CBD
North Belt
Greenway Plaza
Northwest
Galleria
FM 1960
Katy Freeway
Houston
Midtown
CBD
Westchase
Sugar Land
The Woodlands
Galleria
Houston
Katy Freeway
Medical Center
Medical Center
Sugar Land
Westchase
North Belt
Midtown
Northwest
Greenway Plaza
FM 1960
The Woodlands
$5
$10
$15
$20
Rental Rate
$25
$30
$35
$40
Houston Avg Rate
$45
0%
5%
Vacancy Rate
10%
15%
Houston Avg Rate
20%
03
SUBMARKET COMPARISON
Leasing activity dwindled starting in 4Q’14. Katy
Freeway, The Galleria, and Westchase submarkets
saw the most activity during the second quarter of
2015.
LEASING ACTIVITY
Lease transaction volume continued a sharp decline in
Katy Freeway
2Q’15 to approximately 2.7 MSF leased compared to the
Galleria
previous quarter, which was more than 3.2 MSF. The first half
Westchase
of 2015 had as much leasing activity as one quarter in 2014.
CBD
Between 2010 and 2014, leasing activity averaged over 20.9
Greenway Plaza
MSF annually. The slowdown in leasing activity is mainly due
The Woodlands
to the uncertainty of oil prices.
Northwest
FM 1960
LEASING ACTIVITY NOTES
North Belt
• Lease transaction volume fell below the 15-year quarterly
Sugar Land
average of 4.4 MSF.
Midtown
• The 2nd quarter only saw 2.7 MSF leased, far below the
quarterly average of the previous five years of approximately 5.2
Medical Center
0
1
2
MSF leased.
3
Millions
Trailing 4 Quarters
• The total number of deals was also down to 598 – lower than
the previous 37 quarters and lower when compared to the 15-
Q2’15 Leasing
year quarterly average of 810.
• Average deal size (4,486 SF in 2Q’15) is also lower compared to
the previous 20 quarters and the 15-year average.
TOP 10 TRANSACTIONS
HISTORICAL LEASING ACTIVITY
SF
Building
Submarket
Transocean
255,413
Greenway Plaza
Renewal
IHI E&C
171,426
Katy Freeway
New
Stage Stores
168,901
Galleria
New
Mattress Firm Holding
123,836
Southwest
New
CB&I
100,000
Westchase
New
CEMEX USA
80,000
Katy Freeway
New
United Way of Greater
Houston
79,566
E Fort Bend/Sugar
Land
New
Veterans Evaluation
Services
75,722
Northwest
New
Zachry Group
49,024
Westchase
New
U.S Physical Therapy
40,000
Westchase
New
25
4,500
20
4,000
15
3,500
10
3,000
5
2,500
Millions
Tenant
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
Total SF Leased
‘09
‘10
‘11
Total Deals
‘12
‘13
‘14
1H
‘15
04
CONSTRUCTION &
DELIVERIES
Over 9.3 MSF was delivered across Houston during 2014 and
the momentum was even stronger in 1Q’15 with more than
4.2 MSF delivered – the highest quarterly delivery rate in the
past 15 years – and an additional 3.5 MSF delivered in 2Q’15.
Despite a huge run up in construction costs, there was an
additional 13.1 MSF under construction across the Houston
area at the end of the second quarter.
DELIVERIES (BLDGS. OVER 100.000 SF)
• Over 2.9 MSF can be attributed to ten buildings with more than
100,000 SF.
• Of the 2.9 million SF delivered in 2Q’15, roughly 89.2% was
leased at the time of completion.
• The tenancy profile of half of the buildings (five) delivered in 2Q’15
was single tenant, corporate users, taking 69% of the space
delivered and equating to 2.0 MSF.
• 1Q’15 saw the most SF delivered in a single quarter over the past
15 years.
• The areas to the north and west saw the most building
completions again, including Katy Freeway, Northwest Far, and
The Woodlands.
PROPOSED DEVELOPMENT
• There is an additional 27.2 MSF proposed in 229
properties, most of which, given current economic
conditions, will not come out of the ground this year,
particularly through the end of the year.
• The submarkets that have the most proposed
development include: Katy Freeway (5.9 MSF), The
Woodlands (5.0 MSF), and the CBD (5.9 MSF).
2Q’15 MAJOR DELIVERIES
Noble Energy Center II
FM 1960
456,000 SF
100% Leased
Noble Energy
755 Town & Country Blvd
Northwest Far
206,808 SF
20.1% Leased
Multi-Tenant
10203 W. Sam Houston Pky
Northwest Far
108,633 SF
89% Leased
Multi-Tenant
21700 Merchants Way
Katy Freeway
127,955 SF
0% Leased
Multi-Tenant
ExxonMobil Phase III
The Woodlands
500,000 SF
100% Leased
ExxonMobil
Woodbranch Plaza IV
Katy Freeway
171,475 SF
100% Leased
Multi-Tenant
DELIVERIES BY SUBMARKET 2Q’15
DELIVERIES BY SUBMARKET 1Q’15
Bldgs
SF
% Leased
Galleria/Uptown
0
0
0.0%
45.5%
Katy Freeway
5
1,325,864
45.5%
0
0.0%
Westchase
0
0
0.0%
1
1,500,000
100.0%
Woodlands
1
500,000
100.0%
Northwest
3
1,043,344
62.5%
Northwest
4
1,085,387
82.7%
Other
0
0
0.0%
Other
0
0
0.0%
Total
8
3,761,137
71.9%
Total
10
2,911,251
89.2%
Submarket
Bldgs
SF
% Leased
Galleria/Uptown
0
0
0.0%
Katy Freeway
4
1,217,793
Westchase
0
Woodlands
Submarket
Woodcreek Park Phase IV
Katy Freeway
336,000 SF
100% Leased
Shell Oil
9807 Katy Freeway
Katy Freeway
143,830 SF
100% Leased
Multi-Tenant
Westway Plaza
FM 1960
314,000 SF
100% Leased
Multi-Tenant
935 N. Eldridge Pky
Katy Freeway
546,604 SF
100% Leased
Multi-Tenant
04
04
CONSTRUCTION AT-A-GLANCE
UNDER CONSTRUCTION (BLDGS. OVER 100.000 SF)
PRE-LEASED
PERCENTAGE
• At the end of the 2Q’15, Houston had more than 13.1 MSF of
Combined both multitenant and single
tenant (for just multitenant projects, the
pre-leased percentage is 25%)
office space under construction in 71 buildings. Of these, 28 are
at least 100,000 SF and encompass over 11.5 MSF.
• The tenancy profile of 49.9% of the buildings currently
under construction is single tenant, corporate users totaling
62%
approximately 5.7 MSF in ten buildings.
SINGLE TENANT
CONSTRUCTION
• Multi-tenant buildings over 100,000 SF, which account for
50.1% of inventory under construction, are 24.6% pre-leased
with a weighted average rent of $44.77 PSF gross with average
There is 5.7 MSF of
single-tenant space
under construction
compared to 5.8
MSF of multi-tenant
space
operating expenses between $13.00 and $14.00/SF.
Single Tenant
Bldgs.
SF
% of Devs.
% Leased
2015
3
833,000
14.5%
100%
2016
7
4,900,492
85.5%
100%
2017
0
NA
NA
NA
ST Total
10
5,733,492
49.9%
100.0%
Bldgs.
SF
% of Devs.
% Leased
2015
10
2,708,649
47.1%
27.6%
2016
7
2,662,433
46.3%
14.4%
2017
1
380,000
6.6%
74.2%
MT Total
18
5,751,082
50.1%
24.6%
TOTAL
28
11,484,574
100%
62.2%
Multi-Tenant
CONSTRUCTION BY SUBMARKET
50%
SLATED OFFICE DELIVERY
11.5 MSF
3Q’15
02/2017
HISTORICAL CONSTRUCTION
14 MSF
Katy Freeway
12 MSF
Northeast Near
CBD
10 MSF
Westchase
The Woodlands
8 MSF
Galleria
6 MSF
Greenway Plaza
FM 1960
4 MSF
Midtown
2 MSF
Southwest Outlier
Sugar Land
0
0
1 MSF
SF Leased
2 MSF
SF Unleased
3 MSF
‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17
Delivered
Projected
2014 1Q’15 UNDER CONSTRUCTION
915 Eldridge Pkwy
Katy Fwy West
526,637 SF
0.0% Leased
Multi-Tenant
Delivers 4/2016
925 Eldridge Pkwy
Katy Fwy West
600,000 SF
100% Leased
ConocoPhillips
Delivers 9/2015
10353 Richmond
Westchase
445,000 SF
100% Leased
Multi-Tenant
Delivers 2/2016
1500 Post Oak Blvd
Galleria
600,000 SF
100% Leased
BHP Billiton
Delivers 10/2016
Subsea Ln @ W Lake Houston
Northeast Near
1,700,000 SF
100% Leased
FMC Technologies
Delivers 6/2016
1110 Main St
CBD
406,600 SF
100% Leased
Hilcorp Energy
Delivers 1/2016
9811 Katy Fwy
Katy Fwy East
526,637 SF
58.5%
Multi-Tenant
Delivers 11/2015
825 Town & Country
Katy Fwy East
227,063 SF
62.3% Leased
Multi-Tenant
Delivers 7/2015
3773 Richmond
Greenway Plaza
210,000 SF
37.4% Leased
Multi-Tenant
Delivers 4/2016
2101 Citywest Blvd
Westchase
1,100,000 SF
100% Leased
Phillips 66
Delivers 6/2016
609 Main St
CBD
1,057,668 SF
0.0% Leased
Multi-Tenant
Delivers 12/2016
3737 Buffalo Speedway
Greenway Plaza
400,000 SF
22.9% Leased
Multi-Tenant
Delivers 8/2015
04
05
NET ABSORPTION
The second quarter saw total net absorption of 434 KSF,
which was not balanced with deliveries (excess of 3.5 MSF).
The FM 1960 submarket had the highest net absorption
followed by The Woodlands and East Fort Bend Co / Sugar
Land submarkets.
NET ABSORPTION NOTES
• Abosprtion in 2014 at 8.9 MSF was historically the highest it’s
been in the past 15 years.
• The Woodlands’ total net absorption in 2Q’15 was over 376
KSF, for a total of two million square feet in 2015.
• The submarkets with the most negative net absorption in 2Q’15
were the CBD (-645,000) and Galleria (-412,000 SF).
HISTORICAL NET ABSORPTION
SUBMARKET COMPARISON
10 MSF
CBD
Galleria
8 MSF
Katy Freeway
North Belt
6 MSF
Northwest
Greenway Plaza
4 MSF
Medical Center
Westchase
2 MSF
Midtown
Sugar Land
0 MSF
The Woodlands
Fm 1960
(2) MSF
‘99
‘00
‘01
‘02 ‘03 ‘04 ‘05 ‘06 ‘07
Class A
Class B
‘08
‘09 ‘10 ‘11 ‘12
‘13 ‘14 ‘15
Houston Total Absorption
(2) MSF
0 MSF
2Q’15
2 MSF
Trailing Four Quarters
4 MSF
06
CBD
SUBMARKET UPDATE
The CBD Submarket is the city’s largest submarket with
nearly 36.5 million square feet of Class A and B space. The
long-term viability of the CBD as the city’s premier submarket
has been ensured as a result of the massive $5 billion public/
private investment in downtown since early 2000.
MARKET TRENDS
OFFICE SNAPSHOT
Class A
Avg. Gross Rental Rate
$ 45.12
Class B
$ 28.23
$0.03 vs
1Q’15
Vacancy
9.5 %
7.6 %
0.4% vs
1Q’15
Net Absorption
-149K SF
7K SF vs
1Q’15
between 1Q and 2Q’2015. This rate is at historically its highest
level in this submarket at $41.38 PSF gross.
$2.81 vs
1Q’15
Vacancy
• The average rental rate (Class A&B) experienced an increase
0.2% vs
1Q’15
Net Absorption
• At 2Q’15 the vacancy rate was the highest it has been since
2006. This is a stark contrast to the vacancy rate in 2014 where
some of the lowest rates in submarket history were recorded
during this time.
• The number of subleases and large blocks continues to grow.
MARKET DRIVERS
•
on office rents and vacancy for the remainder of 2015.
•
Face rates will remain high, as landlords don’t correct down as
quickly as they correct up.
•
Developers are bringing some space to the market to help
meet the increases in demand – one large multi-tenant building
-58K SF
80K SF vs
1Q’15
Unstable price of oil expected to continue to have an impact
will deliver by the end of the year.
•
Increases in concessions will continue given the instability of
oil prices.
Construction
1.6M SF
1.6M SF vs
1Q’15
Construction
0 SF
0K SF vs
1Q’15
•
Due to low vacancies, tenants will still compete for well-located
premier office space, however, there are now more deals to be
made.
•
Tenants will need to continue to monitor the price of oil due to
its correlation with demand for CBD space.
06
CBD SUBMARKET UPDATE
5
4
5
3
1
5
2
2
1
5
2
3
1
3 4
3
1
3
2 5
4
2
1
1
2
4
3
CBD SUBMARKET MAP
UNDER CONSTRUCTION
1
2
3
Hilcorp Energy Tower
406,600 SF | 100% Leased
609 Main Street
1.1 MSF | 0.0% Leased
700 Avenida De Las Americas
115,000 SF | 100% Leased
1
2
3
4
5
LARGEST EMPLOYERS
1
2
3
4
5
Chevron
7,000 Employees
Energy XXI
6,500 Employees
Cheniere
4,965 Employees
Memorial Production Partners
3,175 Employees
Motiva Enterprises
3,000 Employees
LARGEST SUBLEASE SPACES
1
2
3
4
5
BG Group Place
106,005 SF
500 Jefferson
97,953 SF
Three Allen Center
90,467 SF
500 Jefferson
77,629 SF
1001 Fannin
77,629 SF
1600 Louisiana Street
1.7 MSF
5 Allen Center
1.0 MSF
6 Houston Center
633,482 SF
Capital Tower
748,000 SF
One Market Square
750,000 SF
RECENT LEASES SIGNED
1
2
3
4
5
Gardere
75,000 SF
Plains Marketing
24,260 SF
SMFA Law Firm
20,000 SF
Undisclosed
13,000 SF
Vorys
10,000 SF
LARGEST BLOCKS OF SPACE
1
2
3
4
5
Two Shell Plaza
188,695 SF
Two Shell Plaza
159,665 SF
Total Plaza
145,352 SF
Total Plaza
124,083 SF
Wells Fargo Plaza
114,066 SF
06
06
18%
$50
$40
15%
$30
12%
$20
9%
$10
6%
The following graph illustrates the
historical rental and vacancy rates for
the submarket in both Class A and
Class B buildings.
3%
$0
2Q ‘08
2Q ‘09
2Q ‘10
Class A Rate
LEASING ACTIVITY
2Q ‘11
Class B Rate
2Q ‘12
2Q ‘13
Class A Vacancy
2Q ‘14
2Q ‘15
Class B Vacancy
5MSF
500
4MSF
400
3MSF
300
2MSF
200
1MSF
100
historical leasing activity for both
Class A and Class B buildings in the
submarket.
0 SF
0
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
SF Leased
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘11
‘12
‘13
‘14
‘15
Total Deals
3MSF
2MSF
ABSORPTION & DELIVERIES
1MSF
historical net absorption and square
0 SF
feet delivered for both Class A and
Class B buildings in the submarket.
-1MSF
-2MSF
‘00
‘01
‘02
‘03
‘04
‘05
‘06
SF Delivered
‘07
‘08
‘09
‘10
YTD Absorption
06
GALLERIA
SUBMARKET UPDATE
The Galleria area has historically been one of Houston’s
most popular submarkets, providing tenants great access
and amenities. With the metro area’s nation-leading job
growth over the past few years, this submarket has grown
increasingly tight, particularly in Class A buildings.
MARKET TRENDS
OFFICE SNAPSHOT
Class A
$ 36.12
Class B
• Since the first quarter of 2013, the average rental rate (Class
A&B) has gradually continued to increase. This rate is at
historically its highest level in this submarket at $33.07 PSF
$ 25.60
$0.71 vs
1Q’15
$0.01 vs
1Q’15
gross.
• Over the past five years, vacancy rates (Class A&B) have
fluctuated between the 9.5% - 11% range, and is currently at
its highest level since 2010 at 11.3%.
• The number of subleases and large blocks continues to grow
– sublease space increased over 100,000 SF from quarter to
Vacancy
Vacancy
12.4 %
quarter, to over 650,000 SF.
9.1 %
2.1% vs
1Q’15
-0.8% vs
1Q’15
MARKET DRIVERS
•
Unstable price of oil has not had a large impact on office
asking rents in this submarket, however landlord concessions
have increased significantly.
Net Absorption
-310K SF
-92K SF vs
1Q’15
Net Absorption
-101K SF
-22K SF vs
1Q’15
•
quickly as they correct up.
•
1.2M SF
1.2M SF vs
1Q’15
There are a few multi-tenant buildings under construction.
•
Construction
Face rates will remain high, as landlords don’t correct down as
Construction
Increases in concessions will continue given the instability of
oil prices.
0K SF
0K SF vs
1Q’15
•
Tenants will still compete for well-located premier office space,
however, there are now more deals to be made.
•
Tenants will need to continue to monitor the price of oil due to
its correlation with demand for space.
06
GALLERIA SUBMARKET UPDATE
5
4
1
1
1
3
4
2
2
5
2
1
3
3
4
1
2
3
1
5
5
2
GALLERIA SUBMARKET MAP
UNDER CONSTRUCTION
1
2
1500 Post Oak Blvd.
600,000 SF | 100% Leased
2
3
4
5
2
3
4
5
1600 South Loop West
120,000 SF
165,000 SF | 0.0% Leased
BHP Billiton
2,000 Employees
S&B Infrastructure
2,000 Employees
Spectra Energy
2,000 Employees
Telecheck
2,000 Employees
Bechtel
1,700 Employees
1
1
1885 Saint James Place
LARGEST EMPLOYERS
1
Williams Tower
69,057 SF
Galleria Tower II
63,829 SF
5151 San Felipe
41,682 SF
1800 West Loop South
39,626 SF
1775 Saint James Place
33,322 SF
1
2
3
4
5
Stage Stores
168,901 SF
PKF
65,416 SF
Capital One Bank
58,000 SF
Undisclosed
40,703 SF
Alliant
39,000 SF
1
2
3
4
5
5251 Westheimer
158,084 SF
Five Post Oak Park
142,665 SF
2700 Post Oak
140,618 SF
515 Post Oak
132,594 SF
1233 West Loop South
111,250 SF
06
06
$40
18%
$35
16%
$30
14%
$25
12%
$20
10%
$15
8%
Class B buildings.
$10
6%
2Q ‘08
2Q ‘09
2Q ‘10
Class A Rate
2Q ‘11
Class B Rate
2Q ‘12
2Q ‘13
2Q ‘15
2Q ‘14
Class B Vacancy
Class A Vacancy
5MSF
750
4MSF
600
3MSF
450
2MSF
300
1MSF
150
LEASING ACTIVITY
submarket.
0 SF
0
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
SF Leased
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘11
‘12
‘13
‘14
‘15
Total Deals
1.5MSF
1MSF
0.5MSF
0SF
-0.5MSF
-1MSF
-1.5MSF
‘00
‘01
‘02
‘03
‘04
‘05
‘06
SF Delivered
‘07
‘08
‘09
‘10
YTD Absorption
06
WESTCHASE
SUBMARKET UPDATE
The Westchase District’s roots trace back to the early 1960s,
evolving from farmland into a 2,460-acre master-planned
community bustling with commercial activity. More than
500,000 people reside within five miles of this submarket,
giving area employers a large, well-educated employee pool.
OFFICE SNAPSHOT
MARKET TRENDS
Class A
$ 38.70
Class B
2Q’15 and 1Q’15 (–2.8%); however, it is still at a historically high
$ 20.08
$0.07 vs
1Q’15
Vacancy
• The average rental rate (Class A&B) increased by $0.86 between
$0.19 vs
1Q’15
level at $30.33 PSF gross.
• Overall, the vacancy rate decreased by 0.6 percentage points to
10.4%. Sublease space in Class A properties increased by over
300,000 SF, adding to vacancy.
• Absorption increased significantly in the second quarter of 2015.
2Q’15 absorption totaled nearly 74 KSF, following a quarter with
Vacancy
11.6%
9.2 %
0.5% vs
1Q’15
-307 KSF.
• Leasing activity continued to slow - the first half of 2015 signed
approximately 507 KSF, compared to 1.4 MSF in the first half
of 2014.
-1.7% vs
1Q’15
MARKET DRIVERS
Net Absorption
21K SF
-384K SF vs
1Q’15
Construction
Net Absorption
52K
•
Construction
1.5M SF
0K SF vs
1Q’15
vacancy for the remainder of 2015, particularly in submarkets
SF
78K SF vs
1Q’15
0 SF
0 SF vs
1Q’15
Price of oil will continue to have an impact on office rents and
in west Houston.
•
The 1.5 million SF under construction is 100% leased, adding
no vacant space to inventory.
•
Due to the low price of oil, increases in concessions are
continuing.
•
The market is currently tenant favorable.
06
WESTCHASE SUBMARKET UPDATE
2
2
1 4
2
1 2
1 1 3
2
4
5
5
3
4 3
2
5
3
1
5
4
WESTCHASE SUBMARKET MAP
UNDER CONSTRUCTION
1
2
2101 CityWest
1.1 MSF | 0.0% Leased
10353 Richmond
445,000 SF | 100% Leased
1
2
3
LARGEST EMPLOYERS
1
2
3
4
5
Jacobs
2,344 Employees
Halliburton
1,700 Employees
BMC
1,277 Employees
Phillips 66
1,100 Employees
CB&I
930 Employees
1
2
3
4
5
CityWestPlace Building 4
176,193 SF
103,018 SF
10500 Richmond Street
93,614 SF
Two BriarLake Plaza
97,441 SF
Westchase Corporate Center
31,563 SF
CityWest 6
387,200 SF
CityWest 5
306,900 SF
6004 Rogerdale
158,607 SF
1
2
3
4
5
Undisclosed
100,000 SF
US Physical Therapy
39,471 SF
Undisclosed
25,000 SF
Undisclosed
25,000 SF
Abby
17,472 SF
1
2
3
4
5
119,427 SF
Two BriarLake Plaza
107,088 SF
Westchase Park II
100,000 SF
RIchmond Park
99,087 SF
2900 Wilcrest Drive
69,454 SF
06
06
$40
24%
$35
20%
$30
16%
$25
12%
$20
8%
$15
4%
Class B buildings.
$10
0%
2Q ‘08
2Q ‘09
2Q ‘10
Class A Rate
LEASING ACTIVITY
2Q ‘11
Class B Rate
2Q ‘12
2Q ‘13
Class A Vacancy
2Q ‘14
2Q ‘15
Class B Vacancy
3.5MSF
350
3MSF
300
2.5MSF
250
2MSF
200
1.5MSF
150
1MSF
100
submarket.
0.5MSF
50
0 SF
0
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
SF Leased
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘11
‘12
‘13
‘14
‘15
Total Deals
1.5MSF
1MSF
0.5MSF
0 SF
-0.5MSF
-1MSF
‘00
‘01
‘02
‘03
‘04
‘05
‘06
SF Delivered
‘07
‘08
‘09
‘10
YTD Absorption
06
KATY FREEWAY
SUBMARKET UPDATE
The Energy Corridor has long been one of Houston’s most
desirable submarkets and is dominated by large tenants in
the E&P and engineering sectors. This market is driven by
the price of oil and natural gas. Large users like BP, Conoco,
and Shell drive market demand.
OFFICE SNAPSHOT
MARKET TRENDS
Class A
$ 36.18
Class B
and 2Q’15 by $0.54 to $31.79 PSF gross.
$ 24.15
$36 vs
1Q’15
Vacancy
%
• Since the previous quarter, the vacancy rate increased by 1.6
percentage points to 11.4%.
• Sublease space continued to increase – up over 450,000 SF
$1.05 vs
1Q’15
since 1Q’15.
MARKET DRIVERS
Vacancy
9.8
• The direct average rate (Class A&B) increased between 1Q’15
13.4 %
0.8% vs
1Q’15
0.3% vs
1Q’15
•
including 2.8 million SF delivered in the first half of 2015.
•
144K SF
Net Absorption
Construction
3.0M SF
4.4 MSF vs
1Q’15
0K SF vs
1Q’15
Construction
269K SF
200K SF vs
1Q’15
Approximately 3.1 million SF under construction will drive
vacancy up further as space is delivered (half of multi-tenant
(375K) SF
159K SF vs
1Q’15
Price of oil will have an impact on office rents and vacancy for
the remainder of 2015.
•
Net Absorption
Vacancy has increased significantly due to several factors,
new construction is pre-leased); this space was originally
being developed to help meet the rising demand, which has
tapered off this year.
•
There are deals to be made in this submarket as space for
lease and sublease continues to climb.
•
The majority of space being vacated is obsolete and will need
to be repositioned.
06
KATY FREEWAY SUBMARKET UPDATE
5
2 3
4 5
3 3 1
5 4
3
1
2
1
14
13 5 25
1
3
3
2
3
44
2
KATY FREEWAY SUBMARKET MAP
UNDER CONSTRUCTION
1
2
3
4
5
15377 Memorial Drive
389,709 SF | 4.7% Leased
1414 Enclave
300,907 SF | 0.0% Leased
915-925 N. Eldridge Parkway
1.5 MSF | 100% Leased
825 Town & Country
227,063 SF | 62.3% Leased
9811 Katy Freeway
452,370 SF | 55.2% Leased
1
2
3
4
5
13501 Katy Freeway
400,000 SF
Gateway Park Tower
514,500 SF
Gateway Park II
190,900 SF
Gateway Park III
190,900 SF
Gateway Park IV
187,500 SF
*26 total buildings are being proposed.
LARGEST EMPLOYERS
1
2
2
4
5
3
4
5
Wood Group
10,960 Employees
BP
9,537 Employees
ConocoPhillips
3,000 Employees
Shell
3,000 Employees
Methodist Hospital
2,100 Employees
1
2
3
4
5
Three Westlake Park
215,861 SF
Two Westlake Park
192,975 SF
16290 Katy Freeway
155,050 SF
Three Westlake Park
155,044 SF
Two Westlake Park
85,065 SF
1
2
3
4
5
IHI
171,426 SF
Cemex
80,000 SF
Schlumberger
51,153 SF
J. Connor Consulting
32,066 SF
Hargrove
20,717 SF
1
2
3
4
5
580 WestLake Park Blvd.
205,304 SF
11700 Katy Freeway
161,940 SF
15150 Memorial Drive
146,760 SF
12140 Wickchester
146,565 SF
580 WestLake Park Blvd.
85,065 SF
06
06
$40
18%
$35
15%
$30
12%
$25
9%
$20
6%
$15
3%
Class B buildings.
0%
$10
2Q ‘08
2Q ‘09
2Q ‘10
Class A Rate
2Q ‘11
Class B Rate
2Q ‘12
2Q ‘13
Class A Vacancy
2Q ‘14
2Q ‘15
Class B Vacancy
5MSF
750
4MSF
600
3MSF
450
2MSF
300
1MSF
150
LEASING ACTIVITY
submarket.
0 SF
0
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
SF Leased
‘09
‘10
‘11
‘12
‘13
‘14
‘15
‘11
‘12
‘13
‘14
‘15
Total Deals
4MSF
3MSF
2MSF
1MSF
0 SF
-1MSF
‘00
‘01
‘02
‘03
‘04
‘05
‘06
SF Delivered
‘07
‘08
‘09
‘10
YTD Absorption
06
THE WOODLANDS
SUBMARKET UPDATE
With several construction cranes dotting the horizon and
expanded/new corporate headquarters including Exxon,
Southwest Energy, and Anadarko, small and medium-sized
tenants in The Woodlands are finding themselves squeezed
for space and shocked by increases in rental rates.
MARKET TRENDS
• Both Class A and B rates have been experiencing a fluctuation,
OFFICE SNAPSHOT
most of which has been downward, but is starting to see the
trend reverse. Quarter-over-quarter, rates increased by 3.6%
Class A
$ 33.92
Class B
(Class A) and 0.1% (Class B).
• Absorption has kept pace with deliveries, however leasing
activity in the first quarter of 2015 was the lowest it’s been in
$ 25.69
$0.19 vs
1Q’15
$0.03 vs
1Q’15
the last 15 years, contributing to increasing vacancy rates.
• Of the 1.6 MSF currently under construction (buildings 100,000
SF+), nearly half are classified as multi-tenant. This space is 0%
pre-leased and will add a glut of availability and will drive the
vacancy rate up upon delivery in late 2015 and 2016.
Vacancy
Vacancy
4.7 %
9.0 %
0.1% vs
1Q’15
1.1% vs
1Q’15
MARKET DRIVERS
•
Demand has come from corporate relocations and expansions
in the energy, medical and chemical sectors.
•
Rates for Class B space have not declined as rapidly,
presumably due to service companies looking for value space
Net Absorption
453K
that is near the new corporate headquarters.
Net Absorption
SF
1.7M SF vs
1Q’15
-76K SF
-25K SF vs
1Q’15
•
Recent headquarter moves and expansions have improved
access and drive times, spurring additional development of
other office, retail, hotel, and residential projects.
•
Unstable price of oil will have an impact on office rents and
vacancy for the remainder of 2015. Development has also
Construction
1.6M SF
1.9M SF vs
1Q’15
slowed.
Construction
18K SF
34K SF vs
1Q’15
•
Increases in concessions will continue.
•
With higher vacancies, more space options are now available.
06
THE WOODLANDS SUBMARKET UPDATE
5
4
3
3
4
2
3
2
1
1
1
5
2
3 1
1 2
3
4
2
3
5
4
4
5
THE WOODLANDS SUBMARKET MAP
UNDER CONSTRUCTION
1
2
3
4
1725, 1735, 1780 Hughes Land.
969,707 SF | 66% Leased
Havenwood Office Park
240,470 SF | 0.0% Leased
Wildwood Corporate Centre II
1.5 MSF | 100% Leased
Springwoods Village
150,000 SF | 33.3% Leased
1
2
3
4
5
10 Waterway Avenue
500,000 SF
Superblock East
654,119 SF
Superblock West
400,000 SF
CityPlace I & II
385,900 SF
Energy Crossing North
288,000 SF
*13 total buildings are being proposed.
LARGEST EMPLOYERS
1
2
3
4
5
Anadarko
3,481 Employees
Aon Hewitt
1,800 Empoloyees
Memorial Hermann
1,400 Employees
St. Luke’s Hospital
1,348 Employees
Lone Star College System
1,178 Employees
1
2
3
4
5
10101 Woodloch Forest Drive
25,879 SF
Town Center I
24,331 SF
4055 Technology Forest Blvd
23,894 SF
25025 North I-45
85,065 SF
Reserve at Sierra Pines
15,077 SF
1
2
3
4
5
Undisclosed
26,189 SF
Undisclosed
25,576 SF
Newfield
24,910 SF
Undisclosed
16,717 SF
Undisclosed
12,806 SF
1
2
3
4
5
Sierra Pines II
153,810 SF
93,557 SF
128 Vision Park
50,000 SF
36,314 SF
460 Wildwood Forest
21,599 SF
06
06
$40
16%
$35
14%
$30
12%
$25
10%
$20
8%
$15
6%
Class B buildings.
$10
4%
$5
2%
0%
$0
2Q ‘08
2Q ‘09
2Q ‘10
Class A Rate
2Q ‘11
Class B Rate
2Q ‘12
2Q ‘13
Class A Vacancy
2Q ‘14
2Q ‘15
Class B Vacancy
1.5MSF
300
1.2MSF
250
0.9MSF
200
0.6MSF
150
0.3MSF
100
LEASING ACTIVITY
submarket.
0 SF
50
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
SF Leased
‘09
‘10
‘11
‘12
‘13
‘14
‘11
‘12
‘13
‘14
‘15
Total Deals
4MSF
3MSF
2MSF
1MSF
0 SF
‘00
‘01
‘02
‘03
‘04
‘05
‘06
SF Delivered
‘07
‘08
‘09
‘10
YTD Absorption
‘15
07
FORTUNE 500 COMPANIES
Houston ranks third among US metropolitan
areas in Fortune 500 headquarters, with 26
companies based in the Houston MSA. More
than 88% of these companies are in some
way related to the energy industry.
Below is a list of all Fortune 500 companies
headquartered in the Houston MSA as of the
end of 2014:
Phillips 66
#6
Waste Management
#207
ConocoPhillips
#47
Cameron
#286
Enterprise Products
#56
Group 1 Automotive
#307
Sysco
#63
CenterPoint Energy
#333
Plains GP Holdings
#70
KBR
#360
Halliburton
#103
FMC Technologies
#368
NOV
#131
Targa Resources
#395
Baker Hughes
#132
Quanta Services
#396
Apache
#179
Calpine
#414
Marathon Petroleum
#188
Spectra Energy
#461
Anadarko
#202
MRC
#478
the city from major job losses, these cutbacks have altered
EOG Resources
#203
Buckeye Partners
#485
recently revised its 2015 jobs forecast of 62,900 downward
Kinder Morgan
#206
Noble Energy
#491
HOUSTON ECONOMY
FACTS & FIGURES
In 2015, Houston’s economy has been weakened due to the
oil prices that started their descent in late 2014.
At the beginning of 2015, while local economists were
uncertain of the impact of the downturn, most agreed that
the Houston economy would largely be unscathed.
Now, at the end of the second quarter, opinions are not
as optimistic. While the strong national economy and a
major construction boom in east Houston have sheltered
employment forecasts. The Greater Houston Partnership
to 20,000.
The following pages detail the state of the Houston economy
at the end of the first half of 2015.
07
HOUSTON ECONOMY FACTS & FIGURES
US GDP RANKING
Job
growth
in the Washington
MSA
has been
Houston
has benefitted
from four years
of exceptional
challenged
contraction
of the federal
government.
growth. Duebytothe
this
rapid economic
expansion,
the city
New York CIty
$1.4 Trillion
Los Angeles
$792 Billion
Chicago
$586 Billion
Houston
$533 Billion
Norway
$512 Billion
Venezuela
$438 Billion
Any
the nation
job growth
rateproducing
will have to
be
now improvement
ranks fourth ininthe
in GDP
more
fueled
by the
private
sector.
than $533
billion
annually.
WORLD GDP RANKING
If Houston were a country, its economy would be larger
Job growth in the Washington MSA has been
than those of Argentina and Norway, according to the
challenged by the contraction of the federal government.
World Bank, and would rank as the world’s 25th largest
Any improvement in the job growth rate will have to be
economy. The city of Houston also has a GDP greater
fueled by the private sector.
than 42 states.
0.1%
7.2%
Mining
5.7%
Construction
ECONOMIC GROWTH
19.3%
20.9%
Houston’s
economic
is expected
in
Job
growth
in thegrowth
Washington
MSAto increase
has been
2015, albeitby
atthe
a much
slowerofpace;
and isgovernment.
projected to
challenged
contraction
the federal
double
between 2015
GDPtoalso
Any
improvement
in theand
job 2040.
growthHouston’s
rate will have
be
is
projected
to
top
$1.1
trillion
by
the
end
of
2027.
The
fueled by the private sector.
adjacent graph shows the city’s economic makeup.
Manufacturing
Trade
Transportation,
Utilities, Warehousing
4.6%
1.5%
Information
Finance, Insurance,
Real Estate
11.9%
18.3%
Services
Government
10.5%
Agriculture
07
PMI RATING
Houston’s PMI registered 46.1 at the
PMI Reading
70
end of May, an increase from 42.7 in
April. After two months of declines,
Houston’s PMI registered its first
60
month-to-month increase in May.
50
Any reading below 50 signifies an
overall contraction in production.
40
Houston’s PMI had held at or above
the 50 point mark for 64 consecutive
months.
COST OF LIVING
Houston ranks third in lowest overall
cost of living among the nation’s 20
most populous metropolitan areas,
with costs 17.4% below the average
for this group. Houston’s housing
costs are 32.9% below this group’s
average.
Houston’s overall after-taxes living
costs are 5.2% lower than the US
average, largely due to affordable
housing prices that are 6.0% below
the national average.
30
2005
2006
2007
2008
2009
50-Point Baseline
2010
2011
PMI Reading
2012
2013
2014
2015
07
ENERGY & OIL
Houston is the “Energy Capital of the World” with almost half
of its economic activity driven by the energy industry. The
city is home to the largest concentration of human capital
and infrastructure for energy research, development, and
WHAT EXACTLY CAUSED THE
DROP IN OIL PRICES?
The drop in oil prices is due to many factors
but generally because supply is much higher
than demand.
production in the nation.
Forty of the 145 publicly traded oil and gas exploration and
production firms based in the US are located in Houston.
In December 2014, the city held 31.7% of the nation’s
202,000 jobs in oil and gas extraction and 11.6% of the
453,400 total jobs in support activities for mining.
OIL PRICES
WTI reached a high of $108 in June 2014 before falling
30.6% to $75 in November 2014 (prices began falling in
September). The price continued to drop, registering $47.60
Since 2010, prices hovered in the $100
per barrel range – because of increasing oil
consumption in countries like China, and
because of conflicts in key oil nations like Iraq
– with production not being able to keep up
with the increased demand.
These high oil prices led to an increase in
drilling, but then demand began to taper off
across Europe, Asia, and the U.S. Unused oil
was just being stockpiled away, causing the
dramatic decrease in prices, and with OPEC
states not agreeing to cut production, the
price of oil continues to fall.
There is also a storage problem, and other
countries could be releasing more supply into
the market, potentially driving prices down
further.
at the end of the first quarter of 2015 and fluctuating since
then, ending the second quarter of 2015 at $59.47.
OIL DEMAND SUPPLY BALANCE
MB/D
MB/D
96
3
94
2
92
1
90
0
revised downward stating that WTI will average $50.00 in
88
-1
2015 and $62.00 in 2016. Other experts expect the price to
86
-2
The increase in domestic production has greatly reduced
U.S. dependence on foreign oil. EIA forecasts have been
drop as low as $20.00 per barrel.
84
-3
1Q’09
3Q’10
Oil Stock Change
1Q’12
Oil Demand
3Q’13
1Q’15
Oil Supply
RENT VS THE PRICE OF OIL
Oil Price
07
Rental Rates
There is a correlation between the
$160
$38
success of the energy industry and
$140
$36
office rental rates, as well as leased
$120
$34
space, in Houston. As the price of
$100
$32
$80
$30
$60
$28
$40
$26
With the decrease in the price of oil,
$20
$24
landlord concessions have increased
$0
oil increases or decreases, Class A
rents usually follow suit, typically with
a six-month lag.
$22
2Q ‘08
while rents in some key submarkets
2Q ‘09
2Q ‘10
2Q ‘11
2Q ‘12
Oil Price
have started to decrease.
2Q ‘13
2Q ‘14
2Q ‘15
Rental Rates
OIL RIG COUNT
Rig Count
The number of U.S. oil and gas rigs
2,100
in use settled at 859 during the week
1,900
ended June 30 - the first increase in
1,700
29 weeks.
The last rise occured during the week
1,500
1,300
ended December 5, 2014, and the
1,100
count has since then plunged over
900
1,000 units.
700
500
Analysts believe this may be the bottom in rig counts.
Jan.
Feb.
March
April
2013
May
June
2014
July
Aug.
Sep.
2015
Oct.
Nov.
Dec.
07
POPULATION
Houston is the fourth largest city (2.2 million residents) and
fifth largest MSA in the nation, with approximately 6.5 million
residents.
The MSA also led the nation in population growth in 2014,
adding 156,371 residents.
NEW ARRIVALS
The city of Houston (as opposed to the MSA) is one of the
fastest growing cities in the U.S. 35,202 residents moved to
Houston in 2014. That is one new resident every 15 minutes.
X
POPULATION GROWTH
Houston is anticipated to lead the nation in population
and employment growth between 2015 and 2040, adding
125,000 new residents in 2015. The population is projected
to swell by four million residents by the end of 2040.
2015
2040
6.5 Million
9.9 Million
ECONOMIC DIVERSIFICATION
Up from 13% in the mid-1980s, diversifying
sectors now contribute to approximately 50%
of Houston’s economy.
07
Oil
Other
DIVERSIFYING
SECTORS
1986
Oil
Other
Substantial diversification in Houston’s economy in the last
30 years has reduced its vulnerability to downturns in the
upstream energy sector.
Drivers powering the rising economic diversification include:
2015
HEALTHCARE
PETROCHEMICALS
TRADE
Healthcare accounts for one in every
Houston is one of the world’s largest
The
ten jobs in the region and 9.5% of all
petrochemical producing centers and
makes it an easily-accessed portal to
local payroll ($15.9 billion in 2013).
the $15 billion petrochemical complex
the global marketplace. The Port of
The sector is projected to add 9,600
at the Houston Ship Channel is the
Houston ranks first in the US in total
jobs in 2015 in Houston.
largest in the US and second largest
tonnage (for 22 years straight) and
worldwide.
waterborne cargo value.
region’s
AIR & SPACE
TECHNOLOGY
Home to the Johnson Space Center,
Research and development is critical
and a diverse network of 50 research
to NASA’s Johnson Space Center,
and education organizations with ties
the Texas Medical Center, the world’s
to aerospace technology, Houston is
largest concentration of energy and
a worldwide leader in the aerospace
petrochemical companies, and major
industry.
universities across the region.
geographic
location
07
JOB RECOVERY
Houston led the nation in job recovery, adding three new jobs for each lost in the “Great
Recession”.
+
EMPLOYMENT
Since the lows of the recession, Houston had led the nation
JOB GROWTH
in job recovery (by creating 445,000 new jobs), adding three
Houston will account for 25% of all job growth
in Texas between 2012 and 2040.
jobs for every one lost. Currently, with the drop in oil prices,
the annual rate of gain has slowed in 2015.
NON-FARM EMPLOYMENT
JOBS
JOBS
JOBS
JOBS
• Total non-farm employment in the Houston MSA continued its
climb to 2.99 million in June 2015, up 55,700 from one year
Houston
earlier.
• From June 2014 to June 2015, local non-farm employment
Rest of Texas
NATIONAL JOBS COMPARISON
rose 1.9%, slightly lower than the national average of 2.1%.
• According to the Regional Commissioner, the Houston
The Houston
MSA holds
more total
jobs than
35 individual
states.
metropolitan area has had over-the-year employment increases
in each month since July 2010.
• Leisure and hospitality registered the largest annual job gain
among Houston’s supersectors, adding 18,800 jobs since June
2014 - more than double the national rate of 2.9%.
• The manufacturing supersector lost 8,300 jobs, falling 3.3%.
EMPLOYMENT VS RENTAL RATE
EMPLOYMENT VS OCCUPANCY
3,500
$40
3,500
92%
3,000
$32
3,000
90%
2,500
$24
2,500
88%
2,000
$16
2,000
86%
1,500
$8
1,500
84%
1,000
$8
1,000
82%
500
$8
500
80%
$0
0
0
‘05
‘06
‘07
Employment
‘08
‘09
Houston Rate
‘10
‘11
‘12
Class A Rate
‘13
‘14
Class B Rate
‘15
78%
‘05
‘06
‘07
Employment
‘08
‘09
Houston Rate
‘10
‘11
‘12
Class A Rate
‘13
‘14
‘15
Class B Rate
07
HOUSING
Houston set a record in June 2015 with the highest onemonth volume ever, up 4.1%. The time it took to sell the
average home reached a record low of 43 days.
Houston’s average sales price for a single-family home is
$302,942, a 6.6% increase over the previous year, an alltime high. The median price for a single-family home also
increased to its highest level at $225,000.
Houston’s median house price is third lowest among the ten
largest U.S. metropolitan areas, however, the city ranked
fourth in median sales price gain since 2012.
“
I think it speaks very well for the health of our real
estate market when you have a month in which sales
are up, rentals are up, inventory is growing, and you’re
comparing it all to the record year of 2014. We still
expect normalization in the marketplace later this year,
and that may well mean these alternating up and down
sales months, but the bottom line appears to be that
there is no lack of interest in housing in Houston, Texas.
- HAR Chair, Nancy Furst
07
FOREIGN TRADE
In 2014, more than $253.3 billion in foreign trade passed
through the Houston-Galveston Customs District, up 0.6%
from the $251.8 billion handled in 2013.
Exports accounted for a majority of the growth. Commodity
imports have declined for the past three consecutive years.
Future growth will slow due to the sluggish performance of
Billions
the global economy.
$300
$149
$250
$147
$123
$122
$127
$129
$132
2012
2013
2014
$151
$200
$117
$104
$150
$113
$92
$89
$100
$50
$65
$40
$47
2004
2005
$58
$72
$90
$75
$95
$119
$0
2006
2007
2008
Exports
2009
Imports
2010
2011
MARKET OUTLOOK
08
MARKET OUTLOOK
The outlook for Houston’s economy in the second half of
2015 has turned. What was a cautiously optimistic attitude
at the beginning of the year has changed midway through
the year as the prolonged drop in the price of oil continues.
2015 OUTLOOK
• Worldwide job cuts, reduced capital budgets, reduced
exploration expenditures, and M&A activity continue, adding
to the already large number of subleases and empty blocks of
space.
• Even though rig counts are down, crude oil inventories remain
high and domestic production remains at elevated levels –
showing only small signs of improvement.
• The jobs forecast was revised downward from 62,000 anticipate
new jobs in 2015, to 20,000 – 30,000.
• Office development has slowed (if it’s not under construction
already, it likely won’t break ground in 2015). However, the
second half of 2015 will see a glut of office space delivered to
the tune of 13.1 million SF, by far the largest number on record
(no data before 1999). Vacancy rates are anticipated to increase.
• Due to these market conditions landlord concessions are
increasing and rental rates flattening in 2015.
• While the short-term outlook in Houston is questionable, the
long-term outlook remains bright.
CONTACT US
Cresa Houston
5599 San Felipe, Suite 500
Houston, Texas
713.402.5800
Cresa © 2014. All rights reserved.
Permission is hereby granted for internal distribution by Cresa business partners. Other
reproduction by any means in whole or part without written permission is prohibited.

2q`15 market summary

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