Recession, oil spill affecting downtown Houston

July 5, 2010 5:03:53 PM PDT
The oil industry is a big part of the Houston economy, and while the local economy fares better than much of the country, it's still not what it was before the recession. That's especially true in light of Continental Airlines moving its headquarters to Chicago, and the Gulf oil spill. The downtown skyline is the postcard image of Houston. With 100 buildings and more than 44 million square feet of office space, it is the center of the city's business. But right now, many of its glass and steel framed offices are empty.

"We're running right around 88 to 89 percent occupied. I think when we see the second quarter information, it'll be a little lower than that," said Bob Eury of the Downtown Management District.

Eury says this is the lowest occupancy since the bottom almost dropped out in the wake of the Enron scandal when te energy trading business collapsed.

"It's heading downward instead of upward which is obviously an uncomfortable feeling for us," said Eury.

Of course downtown isn't the only place with vacant properties. You can find 'for lease' signs just about anywhere in town, but downtown there are a unique set of circumstances when it comes to renting out space.

Those set of circumstances include Continental which just announced it is moving its corporate headquarters to Chicago. And the oil spill in the Gulf of Mexico.

Energy companies make up more than half of the tenants downtown. How offshore drilling and exploration are ultimately affected by the spill and what it means to big energy's bottom line long term is unknown.

"We're all affected by what's going on in the Gulf right now," Eury said. "But it's kinda hard to say right now what the net affect will be to us."

However, the news is not entirely gloomy.

"I feel very positive about downtown," said Steven Burkett of Jones Lang LaSalle.

Burkett is a downtown leasing expert of sorts. He represents tenants and in showing us the big picture downtown, he says there are positives even in this down market.

"I think it's relatively positive from the tenant standpoint and it's not the negative for the ownership," Burkett said.

Take for example downtown construction. There are only two new buildings coming online in the next year and there are none on the drawing board.

That means supply won't seriously outpace demand. And even the possibility of Continental emptying its space in the Allen Center on downtown's west side might be good for some other company.

"If 1600 Smith does become vacant and Continental does move out, then that would provide an opportunity for other tenants to look over there, Can I get a better deal both on rental rates and on quality of space?" Burkett said.

The lower rent could mean lower land prices which ultimately encourages residential development. Which in turn, down the road, makes downtown even more attractive for business regardless of the economy.

"When you're in a down market, new opportunities start to appear," said Eury.

Burkett, the specialist in downtown office leasing, says that 2012 and 2013 will be big years for downtown. Many of the city's larger tenants will re-sign their leases during that 24-month period. The average commercial lease period downtown is seven years.


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