Hines builds innovative tower of former Houston Chronicle site: Rendering of new tower shows Hines’ existing 717 Texas Avenue building (left), new Hines building (center) and Hines’ Chase Tower on right.
HOUSTON – (Realty News Report) – Downtown Houston’s office market is being reshaped as new office towers raise the standard for prime commercial properties.
CBRE, the largest commercial real estate brokerage in Houston, plans to implement a formal reclassification of downtown office buildings in 2019, according to Cody Armbrister, CBRE’s senior managing director in Houston.
That reclassification will give corporate decision-makers a clearer answer to a pressing question: “What qualifies as a Class A office building in today’s market?”
Under the new framework, the top buildings will be designated Class A, others will fall into Class B, and a few will be labeled Class C. Some buildings that are now considered Class A may be downgraded to Class B.
“We feel like it’s time,” says Jon Lee, executive vice president and tenant representation broker at CBRE.
The need for reclassification has accelerated because a wave of new office construction is changing expectations. These contemporary buildings feature floor-to-ceiling glass, higher ceilings, restaurants, balconies or outdoor gardens, and amenities that appeal to Millennials. Collaborative workspaces are increasingly preferred over traditional cubicles. Amenities such as fitness centers, secure bicycle storage, and high-quality food halls are becoming standard, while basic food courts fall out of favor. Upgraded restrooms, improved HVAC systems, and advanced sustainability features are now essential in new developments.
Office space is no longer viewed simply as a commodity measured by square footage. Modern buildings play a strategic role in attracting and retaining top talent, making the workplace itself a personnel consideration, Lee says.
Another consequence: the move to collaborative layouts often allows companies to occupy less space. Major tenants can relocate to modern buildings with more efficient floor plans and reduce their overall leased area. For example, law firm Vinson & Elkins leased 212,000 square feet in the new Hines tower under construction downtown—a 37 percent reduction from the 338,920 square feet the firm currently occupies in First City Tower, according to Avison Young.
“Rental rates matter less than employee retention,” says Chris Lewis, managing principal of Lee & Associates in Houston.
The industry calls this trend a “flight to quality.” The unspoken counterpart is a “flight from mediocrity” or even a “flight from inferiority.”
Landlords and investors who own older office buildings are asking the same question: “What do you do with the old product?” Lewis asks.
To remain competitive, many older buildings must be upgraded. Brookfield Properties recently began a large-scale renovation of the 4.2 million square foot Houston Center complex, following its renovation of Allen Center. Buildings that don’t undergo improvements risk being downgraded to Class B or even Class C.
The scale of the challenge is significant: roughly 10 million square feet of downtown space is vacant, and about 2 million square feet of new office space is currently under construction by developers such as Hines and Skanska. Those new towers will increase pressure on owners of older properties.
As the Houston office market advances with new, high-quality buildings, the older building inventory becomes an increasingly urgent question.
“One thing is for certain,” writes Travis Taylor of Lee & Associates in a recent analysis, “the younger generation is changing the way people work.”
