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The Woodlands office submarket is one of Houston’s better performing submarkets, experiencing a robust fourth quarter 2012 with total absorption of 107,932 square feet. Spec office buildings have recently achieved 85 percent occupancy or higher prior to completing construction. For example, both 4 Waterway Square Place (a nine-story, 216,000-square-foot Class A building) and 3 Waterway Square Place (an 11-story, 234,000-square-foot Class A building) preleased to more than 95 percent prior to completion of construction.
Total net absorption registered a positive 145,804 square feet in 2012. In addition, total vacancy for the market dropped 5.2 percent overall in the third quarter of 2012 to 4.2 percent in the final quarter of 2012. Class A rental rates in the second quarter of 2012 were $33.07, up 83 basis points from the prior quarter. Similarly, Class B rates increased three basis points to $22.81. Based on the continued decreasing vacancy rates, as well as continued increasing rental rates, The Woodlands projects to be a landlord favorable market for the year 2013.
Several high-profile projects are under construction, including:
• ExxonMobil Corp. is currently developing a 385-acre site along Interstate 45 and Spring Creek. The site will serve to consolidate all upstream Houston ExxonMobil activities into one large office development and will undoubtedly add value to the surrounding areas.
• Talisman Energy USA Inc. will occupy 218,000 square feet in a new 300,000-square-foot office building being constructed within Research Forest Lakeside. Warmack Investments is the site developer for this 12-story class A property with an expected delivery of April 2013. This property is adjacent to the CB&I world administrative offices and the Aon Hewitt campus on the west side of Lake Woodlands.
• Anadarko Petroleum will occupy a 31-story, 550,000-square-foot Class A building at the corner of Woodloch Forest Drive and Lake Robbins Drive. This Class A building will be adjacent to Anadarko’s existing 817,000-square-foot Lake Robbins Tower and is expected to deliver in 2014.
For several years, The Woodlands’ Development Company has built, leased, and sold office buildings. The Howard Hughes Development Corporation, which recently acquired The Woodlands Development Company, is likely to employ a different strategy of controlling development and retaining product. If they are successful with their new developments — Research Forest, Hughes Landing, and 10 Waterway — and are able to buy product for sale in the marketplace, they could quickly aggregate a significant portfolio.
Also, for the first time in many years, The Woodlands will soon have direct competition with nearby Springwoods Village, east of the ExxonMobil campus at I-45 and Grand Parkway. Southwestern Energy recently announced it will be moving its corporate headquarters to a site there, further validating the location. In addition, Layne Christensen signed a 50,000-square-foot lease at Hughes Landing to relocate its headquarters from Kansas City.
In order to maintain the momentum being built in The Woodlands, developers should use caution to maintain high-quality inventory and resist overbuilding. Most of the development in 2013 will be done by the Woodlands Operating Co. and Warmack or Blackforest, and will take place between Waterway Square and Lake Woodlands. There are several large tenants looking in the submarket now and I predict The Woodlands or Springwoods Village will secure a large, 150,000-square-foot tenant this year.
— Lucian Bukowski, executive vice president and regional managing director of Jones Lang LaSalle