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Office Highlights Houston . Q4 2013 Houston’s office market optimistic as a strong 2013 concludes and 2014 begins As 2013 ended, Houston’s economic gains continued to be robust and sustained. Job growth throughout the region continued to be potent as Houston employers added roughly 80,000 jobs between October 2012 and October 2013. This equated to a 2.5 percent growth year-over-year. While this job growth didn’t reach the heights of past years, the 75,000 to 80,000 newly created jobs per year is projected to continue for the foreseeable future. Overall, Houston is still expected to outpace the nation as a whole in both 2013 and 2014. Since the recession ended in 2010, Houston overall added 337,300 jobs, or two jobs for every one that was lost. As a further indicator of Houston’s economic advantages, job growth is not expected to be focused solely in the energy sector, but across all platforms as we enter 2014. Office users, both large and small, continued to search for available blocks of space throughout Houston as 2013 concluded. The six core submarkets (CBD, Galleria, Greenway Plaza, Katy Freeway, Westchase and The Woodlands) remained the destination of choice for active tenants in the market. As available blocks of space in these areas disappear and with new construction being pre-leased at a nearly 70.0percent rate in the market, vacancy rates continue to trend downward. Tenants who are able to find blocks of space in their desired submarkets must be willing to accept high rental rates and tightening landlord concessions in the short and mid-term. As always, a tenant who is willing to think outside the more established submarkets will be able to secure a more tenant favorable term and transaction. With limited available new construction coming to market over the next 24 months, Houston’s office market will remain landlord favorable for the foreseeable future. Within the tighter submarkets, rental rates are not expected to loosen until new product arrives to market and a gradual shift to a tenant favorable state occurs. Leasing activity • ConocoPhillips renewed its lease for 242,000 square feet at 3 Westlake Park in the Katy Freeway submarket. • The City of Houston renewed its lease at 6010 Sawyer in Midtown. The City occupies 46,000 square feet in the 88,000 square foot building. • A lease agreement for 26,006 square feet was signed by Spectrum Geo at Energy Tower IV. This represents a full floor in the Katy Freeway Class A space. • Petrofac singed a new lease for 35,854 square feet in Westchase. The engineering firm has leased space at 2020 Dairy Ashford. Tour activity Leasing volume Rents Concessions Sales volume Construction deliveries Construction starts Arrows represent change from prior quarter • • • • • • • KIT Professionals, a civil engineering firm executed a new lease for 25,120 square feet at One Briarlake (2000 W Sam Houston Parkway)a Class A Westchase building. The firm renewed and expanded their space. TX Training Centers expanded and relocated its offices to 11490 Westheimer in the Westchase submarket. The firm will occupy 23,882 square feet of space. Getix Health has signed a new lease at 9800 Centre Parkway for 21,738 square feet. Buccaneer Resources has leased 20,056 square feet at 11200 Westheimer in the Westchase submarket. The staffing firm is occupying a full floor in the building. EXSIF Worldwide, a tank container company, renewed 17,860 square feet at 1225 N Loop West and will occupy the 3rd floor in the building. Victory Packaging renewed a lease of 17,781 square feet in Greenway Plaza at 3555 Timmons. Waldemar and Co., an engineering firm, leased 18,628 square feet at Millennium Tower (10375 Richmond) in the Westchase submarket. Tenants in the market • Foster Wheeler: 325,000 square feet (West Houston/Galleria). • Amegy: 250,000 square feet (Westchase). • Cameron: 350,000 square feet (West Houston/Galleria). • Schlumberger: 300,000 square feet (West Houston). Sales activity Houston’s office investment market remained consistent throughout much of 2013. One key merger that took place in the last quarter of 2013 was the purchase of Thomas Properties Group by Parkway Properties. This merger will give Parkway Properties control over not only Phoenix Tower, but also CityWest Place and San Felipe Plaza in the Houston market. Within the fourth quarter alone, approximately $750 million worth of office transactions occurred, and we continue to expect to see deal volume and deal prices to increase as we enter 2014. Jones Lang LaSalle • Houston Office Highlights • Q4 2013 1 • Alliantgroup purchased 3009 Post Oak Blvd in the Galleria from Skanska for $116.5 million, or $386 per square foot. This building was newly constructed and Alliantgroup will also be the lead tenant in the space. • Marathon Oil Tower in the Galleria submarket changed hands for $250.0 million. CBRE Global Investors bought the 1.1 millionsquare–foot, Class A building from Hanover for $227 per square foot. • The JPMorgan Chase Bank building block at 710-712 Main in the CBD sold for $102.0 million from Brookfield to Lionstone. • CREA Investments purchased the 151,000-square-foot Westchase Place building from Westminster Funds. • A three-building portfolio was purchased by ARCP from CapLease during the quarter. The three buildings (Reserve at Park Ten, 10777 Clay Road, and Reserve at Sierra Pines) traded for between $215 to $252 per square foot for the nearly 550,000 square feet involved. • Noble Energy Center (20555 State Highway 249) traded for $231 per square foot from TrammellCrow/Principal Investors to CCIT. The 497,000-square-foot building sold for a price of $115.0 million. • CCIT also purchased 10451 Clay Road in the Katy Freeway submarket from Crimson Real Estate for $27.8 million, or $283 per square foot. • Buildings on the market include: • Park Ten Place I & II (16350 and 16360 Park Ten Place): 141,411 square feet, Class B, Katy Freeway • Younan Place (9801 Westheimer): 211,125 square feet, Class A, Westchase Construction activity Houston’s office construction and build-to-suit market continues to be strong, with large sections of the Katy Freeway, Westchase & Woodlands submarkets being active in this regard. Multiple new buildings are under construction not only in these key submarkets, but additional areas like the CBD, Greenway Plaza and Galleria as well. BHP’s 5 Oaks Tower, 1885 St. James Place, and Enclave Place are amongst the newest announced buildings in the fourth quarter of 2013 and overall, pre-leasing in new construction remains strong as well. • ExxonMobil Corporation continues to develop its 385-acre site along I-45 and Spring Creek. This site will serve to consolidate all upstream ExxonMobil activities into one large campus, and its projected completion will add value to an already booming Woodlands submarket, as well as 10,000 new workers to the area. • Skanska has begun work on its new office tower at 15375 Memorial in the Katy Freeway Submarket. The 325,000-square-foot building is 40.0 percent leased to PGS and is anticipated to arrive to market in mid-2015. • Piedmont Office Trust has announced immediate construction on 302,000-square-foot, 11-story Class A office building in the Energy Corridor. Enclave Place is expected to arrive to the market in mid 2015. • Two Oak Park, a companion building to One Oak Park, is in the design and construction phase in the Westchase submarket. The six-story, 153,000-square-foot building is looking to be 30.0 to 50.0 percent pre-leased initially. • Energy Tower IV by Mac Haik is now in the design and pre-leasing stages and is expected to come on line in 2016 or 2017. • Energy Center III and IV are currently under construction in the Katy Freeway submarket. The entirety of EC III (550,000 square feet) and EC IV (300,000 square feet) has been pre-leased to ConocoPhillips. Occupancy is expected in mid-2015 to mid-2016. • Energy Center V is in the initial design stages within the Katy Freeway submarket, and once a lead tenant is secured will potentially add 600,000 square feet of additional Class A space to the market. • Westchase Park II, a 300,000-square-foot, Class A building in the Westchase submarket, has begun construction with an anticipated completion date of December 2014. PM Realty Group is heading the construction oversite. • Anadarko Petroleum Corporation will occupy a 31-story building at the corner of Woodloch Forest Drive and Lake Robbins Drive in the booming Woodlands submarket. The 550,000-square-foot-building will be adjacent to Anadarko’s existing 817,000-square-foot Lake Robbins Tower, and is projected to deliver in September of 2014 • Two Hughes Landing in the Woodlands has just begun construction. The eight-story, Class A office building is being designed and built by the Woodlands Development Company and is the second of a proposed 11 buildings within the complex. • Chevron has announced its new office tower in the CBD. The 1.7 million-square-foot, 50-story tower will be located at 1600 Louisiana and groundbreaking is expected in mid-2014. • Capitol Tower in the CBD is being developed by Skanska and Gensler on the former Houston Club space. The Class A building is expected to be 33 stories and between 700,000 and 800,000 square feet. • 609 Main is in the development stages with Hines and Colvill. The new Class A tower in the CBD will be 41 floors and roughly 800,000 square feet. In order to break ground, preleasing in the 30.0- to 50.0percent range needs to be achieved. • International Tower in the CBD is being developed by Stream Realty and Essex Commercial Properties. The 925,000-square-foot, Class A building in the CBD is being marketed as Houston’s first office tower to potentially top 50 stories in 30 years. • 3737 Buffalo Speedway is being developed. The 320,000-squarefoot, Class A building in the Greenway Plaza submarket will take the place of the current Solvay office building, and when complete will have 240,000 square feet of Class A office space available for lease. Solvay has already agreed to lease 80,000 square feet of space. • Kirby Grove in the Greenway Plaza submarket is being brought on line by Colvill Office Properties and Midway. The mixed-use development will feature a 240,000-square-foot Class A office building, as well as a loft-style apartment complex and adjacent retail development site. • 1500 Post Oak Blvd in the Galleria, better known as 5 Oaks (BHP Billiton) has commenced construction. The 30-story, 600,000square-foot tower is expected to be complete by mid-2016 and will allow BHP to consolidate all employees to one location in Houston. ©2014 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.