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Market Information: Houston

 

 

Economy:  Year-End 2009

Economy Beginning to Stabilize

The Metro Houston economy has begun to recover from the recession, although employment continues to lag.  Total payroll employment declined by 78,200 jobs in Houston over the 12 months ending October 2009 ­ a 3.0% decline.

The Houston metro unemployment rate was 8.5% in October 2009, up from 5.2% one year ago, but has held relatively steady since the summer. The national unemployment rate was 10.2% in October and edged down to 10.0% in November.

 

Office Market:  Year-End 2009

Office Market: Weak Conditions Prevail Through Year-End 2009

The Houston office market remained weak through year-end 2009, as businesses continued to cut back on use of space.  As a result, vacancy continued to rise and rents continued to edge down through year-end.  Meanwhile, construction activity continued to wind down, with just two major projects under construction in the CBD.

Highlights:

  • Net absorption of office space in the Houston metro totaled negative 530,000 SF in the 4th quarter of 2009, bringing the total for the year to negative 586,000 SF.
  • Available sublease space totaled 2.3 million SF in the Houston metro area at year-end 2009 – an increase of 384,000 SF during the year.  Sublease space represents 0.9% of standing inventory.  
  • The overall office vacancy rate (including sublet space) in the Houston metro rose to 13.5% at year-end 2009, from 13.2% in the 3rd quarter and 11.7% a year ago.  The direct vacancy rate is 12.6% at year-end 2009, compared to 10.9% a year ago. 
  • There is 3.1 million SF of office space under construction or renovation in the Houston metro area at year-end 2009, down from 4.4 million SF in the 3rd quarter and 10.2 million SF a year ago.  Space under construction at year-end 2009 is 42% pre-leased, compared to 33% in the 3rd quarter and 23% a year ago.
  • Office deliveries (including renovations) totaled 6.2 million SF in metro Houston during 2009, including 1.2 million SF in the 4th quarter.  In comparison, 5.3 million SF was delivered in all of 2008.  Space delivered in 2009 was 43% leased upon delivery, compared to 55% in 2008.
  • Class A office asking rents fell by 5.6% in 2009, while Class B rents declined 2.2% during the year.
  • We recorded $17.5 million in office investment sales (for which pricing information could be obtained) in metro Houston in the 4th quarter of 2009 and $126.3 million for the year.  In comparison, sales totaled $1.4 billion in 2008.  Sales prices averaged $50/SF during 2009, down from $168/SF in 2008.  The average sales price was particularly low because most of the recorded sales in 2009 involved older Class B and C buildings, or distressed assets.

 

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Industrial Market:  Year-End 2009

Modest Demand in 2009

Highlights:

  • Net absorption of industrial space in the Houston metro area totaled 1.6 million SF in the 4th quarter of 2009 and 3.9 million SF for the year.  This compares to 9.6 million SF in 2008.    
  • The overall Houston metro industrial vacancy rate declined to 6.0% at year-end 2009 from 6.4% in the 3rd quarter, but is up from 5.7% one year ago.  The direct industrial vacancy rate is 5.8% at year-end 2009, compared to 6.1% in the 3rd quarter and 5.5% one year ago.
  • There is 1.7 million SF of industrial space under construction in metro Houston at year-end 2009.  This compares to 2.1 million SF in the 3rd quarter and 7.2 million SF a year ago. Space under construction is 81% pre-leased, compared to 71% in the 3rd quarter and 19% one year ago.  
  • Deliveries totaled 7.1 million SF in Metro Houston in 2009, compared to 10.1 million SF in 2008.  Industrial space delivered in 2009 was 24% leased upon delivery, compared to 29% in 2008.
  • Industrial rents declined approximately 7% in Metro Houston during 2009, due to economic weakness and modest demand.
  • We recorded only one significant industrial sale (for which pricing information was available) in the 4th quarter of 2009.


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Retail Market:  Year-End 2009

Retail Industry Sluggish

Highlights:

  • The Houston metro area’s population grew from 4.72 million people in 2000 to 5.73 million in 2008, an increase of 21.4% in eight years. Although Houston is currently losing jobs due to the recession, the local economy has held up well compared to other markets around the country.
  • The Retail sector lost 7,700 jobs over the 12-month period ending in October 2009 – a 2.9% decrease. With 258,300 employees in the metro area, the retail industry reflects a resilient local economy, despite the nationwide decline in consumer spending.
  • Net absorption of retail space is on track for a 2009 total of 1.8 million SF when the numbers are finalized, 67% of the long-term average of 2.7 million SF and less than half of the 2008 total. Net absorption was 3.8 million SF in the Houston area in 2008. 
  • Houston’s retail vacancy rate rose to 17.0% in the 3rd quarter of 2009, from a revised 16.7% at mid-year and 16.1% a year ago. The current vacancy rate is the highest in more than ten years.
  • Retail rents in Houston averaged $1.65/SF/month in the 3rd quarter of 2009, two cents higher than the average in the first two quarters of the year.
  • The national slowdown in consumer spending hit in late 2008, which is reflected in a sharp decline in retail sales in the Houston metro area in the first half of 2009. Data from the Texas Comptroller's Office show that Houston had $34.9 billion in sales at mid-year 2009, or $69.8 billion on an annualized basis.  In comparison, sales totaled $84.5 billion in 2008.

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