Office Construction – Followed By NYC, San Jose and Dallas: Houston Leads the Nation

Photo of construction site for Hines 1 million sf spec in downtown Houston. Photo By Ralph Bivins, RealtyNewsReport

In Houston, More than 50 office buildings totaling 17.1 million sq ft are under construction in Houston, which has more than twice as much construction as the No. 2 market, New York with 7.9 million sq ft, as stated by the CBRE Econometric Advisers.

The Greater Houston Partnership reports Houston’s commercial construction permits were up a whopping 193 percent in September, which was the all-time record month for permits. Earlier this year, CBRE tallied 114 proposed office buildings in Houston, in addition to the dozens actually under construction.

There some specs in Houston. Most notable is 1 million sf downtown spec project by Hines, the largest spec building under construction in the nation. But most of the Houston buildings have significant pre-leasing, says Sara Rutledge, CBRE director of research and analysis.

Vacancies are shrinking and rental rates are up in Houston. For the prime “Class A” buildings, rents are up 7 percent over a year ago, Rutledge says. Rental rates in some CBD buildings are approaching $50 per sf.

Market fundamentals are strong. Houston added more than 119,000 new jobs over the last 12 months.

And even though the current building boom with 17 million sq ft under construction is impressive, it doesn’t match up to the early 1980s when Houston was crazily overbuilt.

Over a five-year period in the early 1980s, skyscrapers rose like mushrooms after a thunderstorm and 70 million sq ft was constructed, highlighted by 24 million sq ft in 1983 alone, CBRE reports.

The new buildings are slated to attract plenty of tenants. But the Class A buildings of the past may not fare as well, says Sanford Criner, a veteran office broker for CBRE in Houston.

Older generation buildings need to make major upgrades, with new elevators, new air conditioning, better restaurants and amenities, or else they will slip into a lower tier, Criner says.

Top U.S. Cities for Office Construction

1. Houston, 17.1 million sq ft
2. New York, 7.9
3. San Jose, 7.3
4. Dallas/Ft.Worth, 6.1
5. Washington, DC, 5.4
6. San Francisco, 4.9
7. Boston, 4.7
8. Seattle, 3.8
9. Chicago, 3.6
10. Philadelphia, 3

Ranked by Millions of Square Feet. Third Quarter 2014

Source: CBRE Econometric Advisers