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Houston has long been characterized by its energy presence, earning titles such as “The Energy Capital of the World” and the “Petro Metro.” The American drilling renaissance has brought about significant changes on a national and international scale, and the boom is projected to be sustainable for decades. As a result, energy companies are shifting operations back to the U.S. Houston is at the heart of the American oil industry, and as companies grow and expand their footprint in the U.S., the Houston office market is positioned to experience significant growth.
The economic impact of the shale boom has been felt throughout Texas. The Eagle Ford Shale, one of the most significant oil and gas plays in the country, spans 14 producing counties and had an economic impact of $46 billion in 2012. Surrounding cities, such as San Antonio and Corpus Christi, are experiencing growth in all product types to accommodate the population and employment gains in the region. Midland has become one of the most expensive places in Texas thanks to the Permian Basin, while the Dallas/Fort Worth metro area, with the Barnett Shale in its backyard, continuously tops various economic health indices. But Houston, home to 87,418 headquarters, is where decisions in the energy industry are made.
Energy companies are demonstrating their confidence in the sustainability of the American drilling boom by making significant long-term investments in the Houston office market. To accommodate the need for additional space in Houston’s most sought-after areas, developers currently have more than 10.1 million square feet of office space under construction. The amount of new construction is substantial, but the quality of the new space is also notable. In an effort to retain top talent, energy companies are constructing quality space that is full of amenities.
Buildings that began as speculative developments have leased quickly. An astonishing 82 percent of product under construction is now preleased. Even as these projects begin to deliver to large users, smaller users will still have difficulty finding quality space in areas such as the Energy Corridor, The Woodlands and the Galleria.
In probably one the best example of companies making long-term investments in the Houston area, ExxonMobil is currently constructing a 3 million-square-foot complex just south of The Woodlands. The complex will consolidate 12,000 employees beginning in 2014. ExxonMobil spared no cost in constructing its new campus, spending an estimated $1,200 per-square-foot in development. The campus will boast amenities such as a child care center and a wellness center, aimed at employee retention. ExxonMobil’s campus is driving growth in the area, where an additional 2.1 million square feet is under construction. Anadarko is constructing their second tower totaling 550,000 square feet, and Southwestern Energy recently broke ground on their new 515,000-square-foot headquarters.
In the northwest, Noble Energy signed one of the largest leases in 2012 totaling 497,130 square feet at 20555 State Highway 249. Trammell Crow, in a joint venture with Principal Real Estate Investors, will soon break ground on Noble Energy Center Two. The two buildings will total more than 954,000 square feet. Noble Energy’s CEO, Charles Davidson, cited continued growth and the need for a creative environment as reasons for the new headquarters.
Moving further west, the Energy Corridor contains the largest concentration of energy firms in the U.S. With a vacancy rate of 3.5 percent in Class A space at the close of the first quarter, it is easily considered the most desirable location for energy companies in Houston. ConocoPhillips signed the largest lease year-to-date. The company will occupy Energy Center Three (currently under construction), as well as Energy Center Four (breaking ground in the fourth quarter) in a lease totaling 850,000 square feet. Other companies expanding to new space in the area make up a long list, including Shell Oil Co., Technip, Atwood Oceanics, Modec, Subsea 7, Mustang Engineering, Helix Energy Solutions and Cameron International.
While the Houston metro has diversified into healthcare and trade, roughly 50 percent of the economy remains tied to energy. Global energy demand is projected to increase 30 percent by 2040, and the U.S. shale plays are projected to increase in production until 2040. As the heart of the American oil industry, Houston is an exciting place to be.
— Jeannie Roberts, research director, Avison Young