houston office market review mid year 2010

Accelerating success.

Houston Office Market UpdateMid-Year, 2010

Prepared by:

Coy Davidson

Senior Vice PresidentColliers International

www.colliers.com

Table of Contents

Houston Office Market Update: Mid-Year 2010

i. Market Highlights

ii. Absorption, Supply & Vacancy

iii. Rental Rates

iv. Net Absorption

v. Vacancy

vi. Market Summary

vii. Submarket Profiles

viii. Development Pipeline

ix. Key Events

x. Economic Data

Market Highlights

• Houston continues to be recognized as one of the strongest major metropolitan areas in the U.S. for business activity, with the employment sector reporting marked improvement from this time last year.

• Despite clear signs of economic recovery, the Houston office sector posted anemic market indicators at mid-year including negative absorption, rising vacancy rates and decreasing rental rates for all classes of office space.

• The Houston office market posted negative absorption of 316,519 square feet in the second quarter cancelling out first quarter 2010 gains and bringing the year –to-date total to negative 116,498 square feet.

• Since the first quarter of 2009, the Houston office market has recorded 1,397,349 square feet of negative absorption. However, give a total office market of over 195 million square feet, the incremental downward cycle in the Houston office market has been much less severe than many other major office markets throughout the United States.

• On a year-over-year basis CBD Class A quoted rents fell 7.5% to $35.86/SF (from $38.78/SF) while suburban Class A rental rates fell a modest 0.9% to $27.35/SF (from $27.59/SF).

• Houston office occupancy continued falling at mid-year with the city-wide average for all property classes at 83.5% in the second quarter, compared to 84.9% in the second quarter last year.

• Leasing activity was 2.5 million square feet in the second quarter of 2010 , compared to 3.3 million square feet in the quarter last year.

Houston Office Market

Absorption, New Supply & Vacancy

Houston Office Market

Rental Rates

Class A Rental Rates Weighted Average Quoted Annual Rate

2Q 2008 2Q 2009 2Q 2010 $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$38.18 $38.78

$35.86

$27.76 $27.59 $27.35

CBDSuburban

Rental Rates

Class B Rental Rates Weighted Average Quoted Annual Rate

2Q 2008 2Q 2009 2Q 2010 $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$28.17 $27.32

$22.95

$18.70 $18.48 $17.95

CBDSuburban

Rental Rates

Class A Rental Rates by SubmarketWeighted Average Quoted Annual Rate

CBD

Nearto

wn / A

llen

Pkwy.

Med

ical C

ente

r

Galler

ia

San F

elipe

/ Vos

s

Wes

tcha

se

Woo

dland

s

Katy

Freew

ay

Green

way

Kingwoo

d / H

umble

FM 1

960

North

west

Sugar

Lan

d

Gulf F

reew

ay /

Pasad

ena

NASA / Clea

r Lak

e

Green

spoin

t / N

. Belt

South

west

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00 $35.86

$30.72 $30.70 $30.35 $30.25 $29.08 $29.05 $28.76 $28.11 $27.50

$26.24 $25.52 $25.09 $24.64

$22.12 $20.26

$15.94

Rental Rates

Class B Rental Rates by SubmarketWeighted Average Quoted Annual Rate

CBD

Nearto

wn / A

llen

Pkwy.

Green

way

Kingwoo

d / H

umble

Woo

dland

s

Med

ical C

ente

r

Galler

ia

Gulf F

reew

ay /

Pasad

ena

Wes

tcha

se

NASA / Clea

r Lak

e

San F

elipe

/ Vos

s

Sugar

Lan

d

Katy

Freew

ay

Green

spoin

t / N

. Belt

FM 1

960

South

west

North

west

$-

$5.00

$10.00

$15.00

$20.00

$25.00 $22.95 $22.69

$21.21 $20.55 $20.43 $20.08 $20.02 $19.96 $19.81 $19.39 $19.22 $18.82 $18.36

$16.12 $16.12 $15.63 $15.30

Net Absorption

3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000 1,980,554

951,631

170,740

939,235

78,424

933,614

(590,566)(471,229)

(173,089)(45,967)

200,021

(316,519)

Vacancy

Historical Vacancy Rate

3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 100.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

12.6%11.8%

12.8% 12.9% 13.2% 13.5%14.4%

15.1%

16.1% 16.4% 16.2% 16.5%

Vacancy Rate

Citywide Vacancy Rate (All Classes)

Vacancy by Class

Citywide Vacancy by Building Class (Square Feet)

15,960,273

13,331,112

2,974,211

163,573,541

Class AClass BClass COccupied


Central Business District: Class A

3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 100.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0% 8.6%

7.2%7.0%

7.8%7.5%

8.1%8.5% 8.4% 8.5%

7.8%

8.8%9.0%

Vacancy Rate


3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 100.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

10.0%9.1%

10.3% 10.3%

12.5% 12.6%

14.5%15.5%

17.5%

18.7% 19.1%19.6%

Vacancy Rate

Suburban: Class A

Market Summary: CBD | Suburban | Citywide

Class TotalInventory

Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate

SubleaseVacantSq. Ft.

TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.

WeightedAvg. Quoted Gross Rate

Central Business District

A 26,807,397 2,099,935 7.6% 395,492 2,495,427 9.0% (25,309) (241,856) $35.86

B 8,594,775 1,863,415 21.7% 98,099 1,961,424 22.8% (32,885) (56,773) $22.95

C 1,498,012 765,599 51.1% 0 765,599 51.1% 13,079 22,948 $16.13

Total 37,899,184 4,728,949 12.5% 493,501 5,222,450 13.8% 45,115 (275,681) $27.58

Suburban

A 68,601,567 12,609,406 18.4% 855,440 13,464,846 19.6% (443,746) (138,788) $27.35

B 69,641,746 10,616,351 15.2% 753,337 11,369,688 16.3% 158,544 212,978 $17.95

C 19,496,640 2,179,252 11.2% 29,360 2,208,612 11.3% 13,798 83,993 $15.37

Total 157,939,953 26,405,009 16.1% 1,638,137 27,043,146 17.1% (271,404) 169,183 $22.39

Citywide

A 96,407,964 14,709,341 15.3% 1,250,932 15,960,273 16.6% (469,055) 379,644) $28.56

B 78,436,521 12,479,766 15.9% 851,346 13,331,112 17.0% 125,659 156,205 $18.70

C 20,994,652 2,944,851 14.0% 29,360 2,974,211 14.2% 26,877 106,941 $15.57

Total 195,839,137 30,133,958 15.4% 2,131,638 32,266,696 16.6% 316,519 (116,498) $23.21

Submarket Profiles

16

Market Snapshot

Central Business District


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 26,807,397 2,099,935 7.6% 395,492 2,495,427 9.0% (25,309) (241,856) $35.86

B 8,594,775 1,863,415 21.7% 98,099 1,961,424 22.8% (32,885) (56,773) $22.95

C 1,498,012 765,599 51.1% 0 765,599 51.1% 13,079 22,948 $16.13

Total 37,899,184 4,728,949 12.5% 493,501 5,222,450 13.8% 45,115 (275,681) $27.58

2,495,427

1,961,424

765,599

32,666,734

Class A

Class B

Class C

Occupied

Class A Class B Class C Total $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00 $35.86

$22.95

$16.13

$27.58

Weighted Average Quoted Gross Rate Vacancy by Class (Square Feet)

Submarket Profile

Galleria / West Loop


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 16,312,359 1,449,183 8.9% 233,531 1,682,714 10.3% (12,843) 88,100 $30.35

B 5,518,253 1,176,464 21.3% 25.043 1,201,507 21.08% 23,190 92,900 $20.02

C 426,332 9,874 2.3% 0 9,874 2.3% 1,757 13,250 $16.50

Total 22,256,944 2,635,521 11.8% 258,574 2,894,095 13.0% 12,104 194,520 $25.69


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00 $30.35

$20.02

$16.50

$25.69 1,682,714

1,201,507

9,874

19,362,849

Class A

Class B

Class C

Occupied


Submarket Profile

Greenway


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 6,069,998 974,812 16,1% 147,322 1,222,134 18.5% (59,733) (67,415) $28.11

B 2,731,339 277,133 10.1% 1,310 278,443 10.2% (11,257) (30,034) $21.21

C 925,099 263,726 28.5% 0 263,726 28.5% (25,455) (16,671) $16.83

Total 9,726,346 1,515,671 15.6% 148,632 1,664,303 17.1% (96,705) (114,120) $24.89


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $28.11

$21.21

$16.83

$24.89 1,122,134

278,443

263,726

8,062,043

Class A

Class B

Class C

Occupied

Vacancy by Class (Square Feet)Weighted Average Quoted Gross Rate

Submarket Profile

Neartown / Allen Parkway


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 1,217,048 210,699 17.3% 120,877 313,576 27.2% (2,449) 18,015 $30.72

B 3,071,442 227,422 7.4% 6,749 234,171 7.6% 6,870 (40,672) $22.69

C 1,191,545 410,312 34.4% 0 410,312 34.4% 2,846 10,784 $19.38

Total 5,480,035 848,433 15.5% 127,626 976,059 17.8% 7,267 (11,873) $23.08


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00 $30.72

$22.69

$19.38

$23.08 331,576

234,171

410,312

4,503,976

Class A

Class B

Class C

Occupied


Submarket Profile

San Felipe / Voss


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 1,720,222 235,921 13.7% 43,356 279,277 16.2% (4,363) (30,188) $30.25

B 3,271,828 278,971 8.5% 24,339 303,310 9.3% 35,697 31,492 $19.22

C 161,393 21,688 13.4% 0 21,668 13.4% 1,833 232 $12.53

Total 5,153,433 536,560 10.4% 67,695 604,255 11.7% 33,167 1,536 $23.80


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00 $30.25

$19.22

$12.53

$23.80 279,277

303,310

21,668

4,549,188

Class A

Class B

Class C

Occupied


Submarket Profile

Katy Freeway (Energy Corridor)


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 11,321,761 2,538,292 22.4% 43,853 2,582,145 22.8% 44,122 159,026 $28.76

B 6,887,583 761,633 11.1% 81,593 843,226 12.2% 109,036 317,851 $18.36

C 1,816,250 194,466 10.7% 2,600 197,066 10.9% 6,582 12,880 $15.11

Total 20,025,594 3,494,391 17.4% 128,846 3,622,437 18.1% 159,740 489,757 $25.73


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $28.76

$18.36

$15.11

$25.73

2,582,145 843,226

197,066

16,403,157

Class A

Class B

Class C

Occupied


Submarket Profile

Westchase


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 7,622,238 1,333,388 17.5% 60,097 1,393,485 18.3% 67,169 81,243 $29.08

B 5,243,421 990,471 18.9% 75,857 1,066,328 20.3% (36,710) (94,098) $19.81

C 441,936 58,901 13.3% 0 58,901 13.3% (7,087) (5,001) $14.99

Total 13,307,595 2,382,760 17.9% 135,954 2,518,714 18.9% 23,363 (17,856) $24.88


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$29.08

$19.81

$14.99

$24.88 1,393,485

1,066,328

58,901

10,788,881

Class A

Class B

Class C

Occupied


Submarket Profile

Southwest


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 1,505,805 432,770 28.7% 52,056 484,236 32.2% 11,656 (19,623) $15.94

B 6,043,028 1,234,928 20.4% 158,895 1,393,823 23.1% (41,313) (30,417) $15.63

C 2,475,389 259,768 10.5% 0 259,768 10.5% 11,994 12,701 $11.96

Total 10,024,222 1,926,966 19.2% 210,951 2,137,917 21.3% (17,663) (37,339) $15.20


$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$15.94 $15.63

$11.96

$15.20

484,326

1,393,8

23

259,76

8 7,886,305

Class A

Class B

Class C

Occupied


Submarket Profile

Sugar Land / East Fort Bend County


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 3,535,437 1,127,263 31.9% 13,669 1,140,932 32.3% (500,322) (483,946) $25.09

B 1,953,743 290,638 14.9% 3,933 294,571 15.1% (418) 25,938 $18.82

C 163,968 3,630 2.2% 0 3,630 2.2% 3,506 4,762 $17.50

Total 5,653,148 1,421,531 25.1% 17,602 1,439,133 25.5% (497,234) (453,786) $23.79


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $25.09

$18.82 $17.50

$23.79

1,140,932

294,571

3,630 4,214,015

Class A

Class B

Class C

Occupied


Submarket Profile

Northwest


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 3,724,899 1,353,378 36.3% 1,404 1,354,782 36.4% 4,501 52,852 $25.52

B 6,963,591 1,504,912 21.6% 33,808 1,538,720 22.1% (62,050) (103,364) $15.30

C 1,576,840 60,467 3.8% 0 60,467 3.8% (6,579) 28,997 $12.24

Total 12,265,330 2,918,757 23.8% 35,212 2,953,969 24.1% (64,128) (21,515) $19.98


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $25.52

$15.30

$12.24

$19.98

2,495,42

7

1,961,42

4

765,599

9,311,361

Class A

Class B

Class C

Occupied


Submarket Profile

Greenspoint / North Belt


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 4,618,495 245,088 5.3% 70,220 315,308 6.8% 14,851 29,208 $20.26

B 5,224,078 1,113,984 21.3% 155,036 1,269,020 24.3% 41,962 (42,090) $16.12

C 1,347,079 209,055 15.5% 4,686 213,741 15.9% (18,007) (20,475) $12.89

Total 11,189,652 1,568,127 14.0% 229,942 1,798,069 16.1% 38,536 (33,357) $16.34


$5.00

$10.00

$15.00

$20.00

$25.00 $20.26

$16.12

$12.89

$16.34 315,308

1,269,020

213,741

9,391,583

Class A

Class B

Class C

Occupied


Submarket Profile

FM 1960


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 2,267,021 1,487,350 65.6% 2,071 1,489,421 65.7% 9,582 33,464 $26.24

B 4,609,671 942,872 20.5% 54,038 996,910 21.6% 68,371 67,125 $16.12

C 787,730 70,418 8.9% 2,463 72,881 9.3% 20,077 16,906 $14.44

Total 7,664,422 2,500,040 32.6% 58,572 2,559,212 33.4% 98,030 117,495 $22.09


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $26.24

$16.12 $14.44

$22.09

1,489,421 996,910

72,881

5,105,210

Class A

Class B

Class C

Occupied


Submarket Profile

The Woodlands


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 1,907,801 492,829 25.8% 40,651 533,480 28.0% (1,609) 15,985 $29.05

B 3,275,109 446,536 13.6% 80,970 527,506 16.1% (45,774) (18,637) $20.43

C 172,322 25,077 14.6% 0 25,077 14.6% 0 0 $19.60

Total 5,355,232 964,442 18.0% 121,621 1,086,063 20.3% (47,383) (2,652) $24.81


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$29.05

$20.43 $19.60

$24.81 533,480

527,50

6

25,077

4,269,169

Class A

Class B

Class C

Occupied


Submarket Profile

South Main / Medical Center


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 3,916,733 362,141 9.2% 0 362,141 9.2% (15,000) (11,113) $30.70

B 3,758,188 352,920 9.4% 4,800 357,720 9.5% (2,685) (105,377) $20.08

C 2,745,096 86,171 3.1% 0 86,171 3.1% 10,612 42,109 $17.99

Total 10,420,017 801,232 7.7% 4,800 806,032 7.7% (7,073) (74,381) $24.66


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00 $30.70

$20.08 $17.99

$24.66 362,141 357,720

86,171

9,613,985

Class A

Class B

Class C

Occupied


Submarket Profile

Gulf Freeway / Pasadena


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 53,362 16,829 32.1% 0 16,829 32.1% 0 0 $24.64

B 1,734,729 188,644 10.9% 13,016 201,660 11.6% 13,506 22,139 $19,96

C 1,100,008 118,975 10.8% 6,564 125,539 11.4% (14,460) (11,300 $14.13

Total 2,887,099 324,448 11.2% 19,580 344,028 11.9% (954) 10,839 $16.79


$5.00

$10.00

$15.00

$20.00

$25.00

$24.64

$19.96

$14.13 $16.79

16,829 201,660 125,539

2,543,071

Class A

Class B

Class C

Occupied


Submarket Profile

NASA / Clear Lake


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 1,500,938 180,288 12.1% 37,319 217,607 14.5% (137,211) (137,211) $22.12

B 3,286,374 458,977 13.7% 44,618 673,323 15.3% 7,925 29,098 $19.39

C 963,644 173,985 18.1% 71,681 223,666 23.2% 17,255 (3,637) $15.23

Total 5,750,956 813,250 14.1% 153,618 1,114,596 16.4% (112,031) (111,750) $19.34


$5.00

$10.00

$15.00

$20.00

$25.00 $22.12

$19.39

$15.23

$19.34 217,607

673,32

3

223,66

6

4,636,360

Class A

Class B

Class C

Occupied


Submarket Profile

Kingwood / Humble


Sq. Ft.

DirectVacantSq. Ft.

DirectVacancy

Rate


TotalVacantSq. Ft.

Q2Vacancy

Rate

Q2 Net Absorption

Sq. Ft.

YTD NetAbsorption

Sq. Ft.


A 134,000 25,904 19.3% 0 25,904 19.3% 0 0 $27.50

B 1,790,133 168,356 9.4% 3,741 172,097 9.6% 34,410 51,666 $20.55

C 666,976 26,163 3.9% 0 26,163 3.9% 2,921 1,095 $15.83

Total 2,591,109 220,423 8.5% 3,741 224,164 8.7% 37,331 52,261 $20.81


$5.00

$10.00

$15.00

$20.00

$25.00

$30.00 $27.50

$20.55

$15.83

$20.81 25,904 172,097

26,163

2,366,945

Class A

Class B

Class C

Occupied


Development Pipeline

Select Under Construction Office Buildings

Submarket Building Name Building Address Square Feet

PercentLeased

Developer Estimated Delivery

CBD Main Place 811 Main Street 972,474 10.3% Hines Holdings Feb-2010

CBD Hess Tower 1501 McKinney Street 844,763 100% TCC Development Aug-2010

FM 1960 Chasewood Crossing II 19450 State Highway 249 156,000 0 Greenwood Corporation Apr-2011

Sugar Land Eco Centre at Lake Pointe 16570 Creek Bend Drive 152,619 0 Midway Companies Jan-2011

The Woodlands Black Forest Park 4526 Research Forest Dr. 70,000 0 Black Forest Ventures Dec-2010

Sugar Land The Exchange at Telfair University Blvd. @ Hwy 59 40,000 0 Newland Communities Dec-2010

Main Place

Hess Tower

Eco Centre at Lake Pointe

Key Events

The impact of the BP oil spill on the Houston economy and office market may not be know for some time. The moratorium on offshore drilling in response to the BP rig explosion has impacted 18 firms active with deepwater rigs in the Gulf and 16 of those firms have a significant presence in Houston. The consensus opinion is that when drilling resumes, the industry will operate under stricter regulations, new economics and closer federal government oversight. How the political ramifications may impact investment in offshore drilling in the Gulf of Mexico and the employment base in Houston remains to be seen.

The merger of Continental Airlines and the United Airlines that is expected to close at year end and the consolidation of the combined airline’s corporate headquarters in Chicago will result in some job losses for Houston. The loss of a major corporate headquarters, where Continental Airlines leases over 600,000 square feet in the CBD, will have some impact on the downtown office market, depending on how many jobs are shifted to Chicago and how much space Continental elects to put on the market, likely via sublease.

Last February, the Obama Administration unveiled a controversial new plan for human space exploration, which had business leaders in Houston and property owners in the Clear Lake area deeply concerned. The potential for job losses at Johnson Space Center and among the NASA contractors was projected to be as much as 5,000 jobs, if the Obama plan was adopted. While a new NASA vision and budget has yet to be finalized it appears congressional opponents to the Obama plan have scored a significant victory. Recently, both the House and Senate have approved separate bills that would keep intact funding and the majority of the employment base related to NASA’s Johnson Space Center.

Economic Highlights

• In the twelve-months ending in May 2010, Houston’s job losses totaled 22,000 significantly below the 100,000 jobs lost in 2009.

• The unemployment rate for Houston in May was 8.3% down a half percentage point from the beginning of the year.

• Private sector employment in Houston grew by 10,800 jobs in May 2010 and is up 31,000 jobs since January 2010.

Contact Me

Coy Davidson

Senior Vice President

Office Services Group

Direct: 713.830.2128

[email protected]

www.colliers.com

For more information contact:

Accelerating success.

COLLIERS INTERNATIONAL1300 Post Oak Boulevard, Suite 200

Houston, Texas 77056

www.colliers.com

houston office market review mid year 2010

Real Estate