It is looking like it will take more than a major hurricane to turn off the growth of the energy sector that's helped make the Houston area's office market one of the country's healthiest.Earlier this week, storm-fatigued residents and companies were cleaning up shattered windows and digging out from Hurricane Ike. As recovery efforts focused on restoring power and providing water and food, it was too early to tell the exact extent of the property damage sustained by the city's homes, stores and office buildings, Patrick Trahan, a spokesman for Houston Mayor Bill White, said Monday.
While Galveston, Texas, took a more severe hit from Ike, the massive size of the stock of Houston-area buildings that stood in the path of Ike's high winds and heavy rains still makes the damage considerable in terms of volume, he said. One building damaged was the JPMorgan Chase Tower, which lost many windows. Brookfield Properties Corp. on Monday also said it lost windows in many towers but opened all but two of its nine downtown Houston office buildings. Some top floors of the Devon Energy Tower, also known as Two Allen Center, were closed Monday due to a damaged roof.
A building-maintenance worker snaps a picture of the blown-out windows of the JPMorgan Chase building in Houston. The city, hit by Hurricane Ike, is riding out the property slump relatively well.
But property owners were confident that Houston's office market will sustain its strength despite the damage. Paul Layne, executive vice president with Brookfield Properties in Houston, noted that office tenants needing to relocate temporarily out of storm-damaged buildings could even bump up office absorption over the next few months as repairs are made.
Of course, Houston's location near the Gulf of Mexico has long made it vulnerable to hurricanes -- a factor that plays no small part in decisions to locate in the region. Yet, concern that storms could be worsened by global warming and rising water levels could make at least some companies think twice about whether they're game to handle the region's weather-related hassles. As recently as 2005, Houston's chaotic evacuation in preparation for Hurricane Rita led to traffic gridlock and was blamed for many deaths.
But the area's weather risks have been overshadowed by Houston's appeal as an energy capital. The economy in the region, which has a population of 5.7 million, has downshifted to a 2.2% gain in jobs in July from the year-earlier month. But that outperformed the national economy, which shed about 0.1% of its jobs in July, according to the Bureau of Labor Statistics.
This year, average office rents in the Houston region are expected to rise 11.9% from 2007, the highest percentage gain of the 54 major metropolitan areas surveyed by Property & Portfolio Research, a Boston-based real estate research firm. The nation's sixth-largest metro area office market with an estimated 217 million square feet of space, Houston also tied with Salt Lake City for the third-lowest office vacancy rate of 54 U.S. metros as of the second quarter, PPR said. This puts Houston in a similar situation as Philadelphia, New York, Minneapolis, and Chicago.
That growth comes as many energy firms, burned by overzealous expansions in the in past boom-and-bust cycles, finally chose to take more space during the past two years or so, brokers said. Office rents are forecast to decline slightly and vacancies rise next year as some new office buildings, including speculative space, are completed, PPR said.
Hurricanes and the national economic malaise aren't the only threats to Houston's future growth. Last year, oil-service giant Halliburton Co.'s Chief Executive David Lesar moved to Dubai and the company now operates dual headquarters in Houston and Dubai, although the company said no other employees were relocated there as a result of the new headquarters. Halliburton still employs more than 5,000 people in the Houston area and occupies more than one million square feet of office space in the region. Sanford Criner, executive vice president CB Richard Ellis in Houston, said the company is growing and is believed to be considering major new offices in Houston. A Halliburton spokeswoman said the company was dealing with the aftermath of Hurricane Ike and couldn't comment on the speculation.
While the move to Dubai in the oil-rich Middle East was hailed by some as a possible harbinger of future competition for Houston, the strong performance of the region's office market suggests that for now Houston has done better than simply surviving without Mr. Lesar. "The movement of the headquarters has had no impact," Mr. Criner said. Houston, he said, "is doing fine."
By: Maura Webber Sadovi
