The Surprise Deal of the Year
Cresa principal Sue Rogers just put together a deal that some thought would be impossible in the summer of 2015 – a new office building being started near Houston’s Energy Corridor.
Rogers, along with Cresa colleague Steven Heal, represented Cemex, the Mexican cement and building materials giant, which will anchor a new office building to be developed by MetroNational in the Memorial City development at the northwest corner of Gessner Road and the Katy Freeway.
The 240,000-square-foot building will serve as the U.S. headquarters of Cemex, which has been a tenant in another MetroNational building for years.
With the recent decline in the Energy Corridor/Katy Freeway office market due to the downturn in the energy industry, vacancies have been increasing and a lot of sublease office space has been placed on the market.
So Realty News Report editor Ralph Bivins asked Rogers, who was with Trione & Gordon and Cushman & Wakefield before joining Cresa in 1999, about Cemex and the Energy Corridor office market.
Bivins: With plenty of new space coming online and plenty of sublease available, why did Cemex decide to occupy this new building being constructed in Memorial City?
Rogers: Cemex and MetroNational have always had a great landlord/tenant relationship. The location is convenient to the employee and customer base, and MetroNational was in a position to kick-off a new project with a different look – less glass, more concrete – and this tilt-wall style really spoke to the Cemex brand.
Bivins: What will happen in the Energy Corridor office market over the next year?
Rogers: We expect market occupancy to slow due to the increase in inventory from the delivery of current construction projects, downsizing in the oil and gas industry, and the addition of several major blocks of sublease space.
Bivins: Oil prices have taken a dive in July, moving back toward the $50 per barrel range. Is this going to have any impact on the Houston office market?
Rogers: Primarily due to slower job growth caused by the downturn in oil prices – the Greater Houston Partnership still anticipates very modest employment gains of 20,000 – 30,000 – and overall lack of new drilling activity in the oil and gas industry, we can expect continued deceleration of the market and increased incentives to tenants who are able to take advantage of a market that will be providing a window of opportunity for the next 12-18 months. Tenants who have leases expiring in the next 12-24 months should depend on a tenant rep consultant who knows the market and can provide the maximum benefit given the market outlook.
Bivins: For the record, exactly where does this office market stand today?
Rogers: The current occupancy for Class A&B in the Katy Freeway submarket is down to 86.5 percent. A year earlier, in the second quarter of 2014, it was 93.7 percent. The rental rate in second quarter of 2015 for Class A office space in the Katy Freeway submarket continues to increase and is at $36.18 per square foot gross. A year ago, in the second quarter of 2014, it was $34.47.