Sub-market Report - CBD

The skies for Hines got much more blue when BG Group signed up for 164K SF (expanding to 354K SF)

Overview:

Absorption: While 2010 saw negative absorption of (-276K SF) the fourth quarter showed signs of life with only the second positive quarter of absorption in two years.

Availability: There is over 1.5 million SF of space becoming available in the submarket (BG Group Place and Devon Energy's sublease to name just a few).

Rent rates falling: The large amounts of space that will become available in 2011 should continue the downward pressure on rates.

New Development: BG Group Place and Hess Tower will arrive on the market.

Yesterday was the official opening celebration of the Hines BG Group Place. It was quite a party and Hines has had a reason celebrate as BG Group ended the year with the announcement of a relocation and expansion. The 164K SF initial lease will grow to 354K SF as BG will exercise the expansion right of the mid-rise block of the building. This will lessen the impact of the 972,474K SF delivery this month.

There appears to be a positive trend of absorption so far through February of 2011. In 4Q 2010, Black Stone Minerals Company they grew their HQ at First City Tower by 13,119 SF to 55K SF with a six-year renewal and expansion. Sublease space also decreased by 15% as the remainder of the 116K SF RRI sublease was removed from the market.

Continental Tower - Trouble brewing?

While this news gives the impression that CBD fundamental's are strong. there is an undercurrent that most people in the market is aware of. Not counting the BG Group arrival (which will bring 500K SF of vacancy), there is potentially 2.5 MM SF in play that could push vacancy up and rents down. This 2.5 MM SF is made up of the following:

• One Allen Center has Hess vacating for their new digs (338K SF is moving to Hess tower).
• Two Allen Center has Devon Energy's 281K SF sublease space (becoming available in April of 2011)
• Three Allen Center has the remainder of Devon's sublease space with 120K SF becoming available in April of 2011.
• Two Houston Center has the Shell trading space of 248K SF becoming available in Q3 of 2013
• 700 Milam has Shell's 554K SF which expires 12/2013
• And 1600 Smith Street has the 414K SF Continental Airlines expiring on 12/2014 and Chevron's 250K SF expiring on 3/2011

Forecast:

While all of these are potential threats to the CBD's stability we believe the trajectory of absorption and lack of new development (after the two big deliveries) should help the submarket weather the storm. The sale of Heritage Plaza to Brookfield for $321.5 million is further evidence of the growing confidence in the Houston CBD by investor. Hoping not to miss out on the action, MetLife has put a 50% stake of Wells Fargo Plaza on the market. With strong fundamentals, we are cautiously optimistic about the trajectory of the CBD market.

Open Space Planning - The New Normal?

Open floor plans like the one above that value efficiency is a growing trend

The generation Y preference, the great recession, and a general trend towards cost savings are leading to more efficient space planning for office tenants. The average space per employee is down to 200 SF (down from 500 SF -700 SF) and this article from the LA times estimates that allocation could get down to 50 SF per employee by 2015 . There is no doubt that we are seeing a trend towards more collaborative, efficient, and open floor plans with workstations (with fewer private offices) that is leading to less space needed per employee. The real question is whether this is cyclical in nature or if this is a "new normal" for office space users. In Houston, our energy tenants do not seem to be on the same trajectory, still valuing private offices and keeping a higher ratio. One thing is for certain: No matter the ratio of employee per SF we need more employees (ie job growth is imperative for the office recovery.)

CNBC - 2011 CRE Outlook

There were two phrases you had to throw around in 2010 if you wanted to sound cool: Will Commercial Real Estate be the "next shoe to drop" and how we are experiencing a "bifurcated market". Maria at CNBC mentions both in this recent interview with Hessam Nadji of Marcus & Millichap Research and Advisory Services and Neal Elkin of Real Estate Analytics. Here are some highlights:

• The Big Drop: CRE prices went 42% since peak from 07 through 09 creating a great basis for investors heading into '10.
• Class A trophy asset up 40% since summer: There really was only an appetite for proven assets in proven markets. With large pools of institutional money on the sideline, Blue chip assets appreciated substantially in 2010.
• Secondary assets, in tertiary markets discounted: There were actuall discounts to really weak properties, but no real desire for the mid tier assets.
• Projections: There will be a broadening of the buying appetite for the B and B- assets in 2011 as interest rates still low and risk aversion begins to fade

Sub-Market Report: Galleria

With Stanford's space backfilled by Southern Union, Walton Street Capital

(with HFF's help) hopes to trade the towers for a pretty penny.

Overview:

• Absorption: Q3 resulted in negative (35,026) SF absorption. However the sub-market for the year has netted 164,582 SF of positive absorption with positive activity so far in Q4.
• Big Relocation's: Weatherford's move of 335K SF to 2000 St James and Southern Union's move of 193K SF to Galleria Tower II are the largest of a handfull of relocations in the sub-market.
• Rent rates steady: Despite a soft market, quoted rental rates are higher today ($26.43) than before the recession in 2Q 2008 ($26.17). See chart below for more detail.
• New Development: Skanska and/or Hines may be the first developers to go vertical on new construction in the area in 28 years.

Galleria tenants finally took advantage of a market that turned strongly in their favor and subsequently made some long term lease decisions with relocations and renewals. Large moves ranged from Weatherford consolidating under one roof by taking down 335K SF at 2000 St. James Place, to Southern Union leaving 5444 Westheimer to back fill 193K SF of the old Stanford space at Galleria Tower II (increasing occupancy from 32% to 91%), to Quanta Services leasing floors 26-29 (90,704 SF) in Williams Tower. The large renewals of the year included Suez Energy re-upping for 130K SF at Post Oak Central Three, Cameron International renewing 70K SF at Park Towers, Intertek taking 45K SF of sublease space at Two Riverway, and IES renewing their 20K lease at 1800 West Loop.

There appears to be a positive trend of absorption so far through the fourth quarter. With Gordon Arata McCollam Duplantis & Eagan leasing 16K SF on a full floor of Two Post Oak Central and BHP set to absorb the vacated Quanta Services space, there is a good trajectory heading into 2011.

The BHP Billiton Tower is further solidified as BHP will take the Quanta Services space. BHP will occupy 100% of the 1360 Post Oak Blvd

While the recent activity and overall year to date absorption are positives, there are some downside risks that Galleria Landlords should be cognizant of as 2011 approaches. Customer retention practices will be critical as two new developments will be very intent to pull an anchor tenant from a competing Galleria building. Skanska has a 19 story tower teed up on the 2.3 acres lot on Post Oak and Hidalgo and Hines is back in the game thinking about buidling in the BLVD Place mixed use development at Post Oak and San Felipe. Both are very active in their perspective pursuits to court tenants with upcoming rollovers. Landlord management teams would be wise to be intentional with all customers and focus on best management practices that lead to tenant retention. In addition there is the concern that large tenants may follow BG Group's lead and look to move from the Suburbs to the CBD.

However, there is good reason to be optimistic about next year. There are a number of deals that are on the market to include Apache, Litton Loan Servicing, and Met Life -- all with potentially growing requirements. With rent rates holding firm through the softening of the market, we would expect a gradual increase in rates and a decrease in concessions if demand does pick up. The Galleria is one of the most active sub-markets in investment sales activity with a number of trophy assets on the market. The Lakes on Post Oak, Marathon Oil Tower, and are all activity being marketed by talented investment sales teams. With a continued increase in activity, steady rents, and mitigating concession, we feel the Galleria will be one of the leading sub-markets for the recovery.

And now for the obligatory (but hopefully helpful) charts*:

Galleria Vacancy (Q4 '06 to Q3 '10)

Galleria Absorption (Q4'06 to Q3 '10)

Galleria Rent Rates (Q4 '06 to Q3 '10)

* All data provided by CoStar

Houston Jobs Report: Good but slow growth

The Greater Houston Partnership released its December 2010 Economic Report and once again the employment data shows positive job growth (albeit at a slow pace).

The 10-county Houston/Sugar Land/Baytown Metropolitan Statistical Area gained 6,200 jobs, growing .2 % from 10/31/09 to 10/31/10. This is the second consecutive month of year-over-year increases, hopefully pointing to a Houston recovery.

Across the country, Austin continues to hold the number one position on a year-over-year basis growing 2.4% followed by Charleston: 1.91%, Phoenix: 1.42%, and D.C: 1.31%. While no one is complaining about the news, the question remains: Will the trajectory pick up, or will this be a long and drawn out recovery that Houston climbs out of at very small intervals

Houston Overview by Submarket

*All data provided by CoStar

Sub-Market Report: Greenway Plaza

This landmark Tower should be the beneficiary of large blocks coming off the market.

Quick Overview:

+ Leasing Velocity Improves: Positive Net Absorption was up 49K in Q3 2010 with positive activity thus far in the Q4.

+ Invesco stays put: Invesco inked Houston's largest renewal in 2010 (387 K) in 11 Greenway Plaza on 11/22/10.

+ Rent rates inch down: Quoted Rental Rates are down slightly but holding relatively firm as compared to the broader Houston market.

We all know Greenway Plaza has an incredibly strategic location between the CBD and Galleria, with excellent access to the US-59, Westpark Tollway, and Loop 610. But with only 3 of the past 11 quarters (see chart below) providing positive net absorption, it is safe to say this sub-market has been in a little bit of a funk.

The funk may just be over.

With Invesco signing the largest lease renewal in Houston, Phoenix tower inking 23,373 SF (3 leases signed on 11/11/10), and a positive trend of overall absorption in Q4, Greenway Plaza landlords could be gaining a little more leverage heading into 2011.

The Invesco sign will hang there for at least 10 more years

Tenants are starting to get the picture that it will not be their market forever and the early renewals and long term rate structures the market is seeing is a sign tenants are trying to capitalize on current market conditions before the tide turns.

We expect the Greenway Plaza market to continue to strengthen for the foreseeable future. The supply side is in the favor of the Landlords as the sub-market has a high barrier to entry a no plans for new development in the near term. The downside risk is actually created by another sub-market. Greenway Plaza landlords should be on guard as there will be a strong pursuit from two new developments in the Galleria sub-market to pull a large tenant from another building. Skanska has a 19 story tower teed up on the 2.3 acres lot on Post Oak and Hidalgo and Hines is back in the game thinking about going vertical on a site at Post Oak and San Felipe. While Skanska is going spec with their building we know they are busy talking to some major tenants with rollovers in 2011, 2012, 2013, (and beyond). Hines is looking for a BTS and will be actively searching for the right tenant to pull so they can break ground on their site. Landlord management teams would be wise to stay in front of all customers and focus on best management practices that lead to tenant retention.

Forecast:

Even with the risks associated with competing new developments, the Greenway Plaza market should tighten in 2011. The deep amenity base, high barriers for entry, and stellar location make it a great market to own office space. We anticipate slow but consistent absorption with rental rates that have found a bottom in Q4 2010 and should remain steady during 2011. With the amount of large contiguous blocks becoming rare, we expect large tenants to make serious consideration for the landmark Phoenix Tower.

And now for the obligatory (but hopefully helpful) charts*:

* All data provided by CoStar

CoStar Report: CNBC Video

CoStar Report says CRE prices have taken a 3.88% dip across all property types this quarter.

CRE Cliffnotes (11.15.10)

"Flight to Quality" ~ a two way street

• Link
• Two Sentence Overview: More often than not, you will hear the phrase “Flight to Quality” associated with office tenants who upgrade from class B spaces to class A spaces. This is a short blog post that describes what we have seen in regards to tenants looking to upgrade to higher quality landlords as well.
• One Sentence Takeaway: As we continue to climb out of this soft market tenants will look to upgrade space, but will also be looking to upgrade their building's ownership.

CBD’s going strong

• Link
• Two Sentence Overview: CW’s 3Q US office report indicates that 18 of 30 major US CBDs showed increases in leasing activity. This general rise in activity led to declines in vacancy in most markets.
• One Sentence Takeaway: This report is another indication that we may have found a floor but that a recovery back to pre recession fundamentals will probably be a long and slow one.

No New Permits

• Link
• Two Sentence Overview: The Obama administration reluctantly lifted the drilling moratorium over a month ago, but no new drilling permits have been issued in the Gulf of Mexico since the ban ended. The longer permits are stifled the more direct impact this moratorium will have on Houston jobs.
• One Sentence Takeaway: As a result of the midterm elections we may see additional pressure for more permits, but 2011 will more than likely be slow, resulting in a drop in oil output which more than likely will affect jobs in this sector.

Business Week: Oil to $100 a Barrel?

• Link
• Two Sentence Overview: Oil prices have remained relatively benign for most of the year (staying around $78 a barrel) due to slow global growth and large inventories and supply. With the Fed weakening the dollar by printing money (buying $600 of Treasuries) and global demand picking up during the recovery, we could see a run up in oil prices.
• One Sentence Takeaway: Just from my narrow Houston Office space mind, $100 a barrel oil could be a good indicator for positive absorption in 2011.

Largest Galleria Lease Signings of 2010

JLL Chief on Squakbox

JLL's CEO discusses that in the past 12 to 18 months transaction volumes globally have picked up making price discovery a little more clear.

"Flight to Quality" ~ a two way street

There are some real estate phrases you just have to know if you want to sound cool. For instance, if you don't say "bifurcation of the market" at least once per real estate event, you will undoubtedly lose cool points.

One such phrase that gets thrown around quite often these days is "Flight to Quality". More often than not, you will hear this associated with tenants who upgrade from Class B spaces to Class A spaces. In soft markets tenants are able to leverage lower net effective rents into premium office space for the same amount of rent they were previously paying. Generally speaking, this leaves the class B and C landlords scrounging for tenants by slashing their asking rents and boosting their concession packages. Yet, this isn’t always the case as evidenced by what is going on currently in the Houston office market. Flight to quality can go the other way as well. This scenario is where office tenants will select quality landlords over another landlord with an equal or better building based on the strength of ownership.

At PRS, we have seen a pretty substantial flight to quality landlords. First, let's define who are "quality landlords":

+ Healthy financially: Quality landlords can afford to both maintain the building properly, as well as fund their obligations from a lease (i.e. fully funding Leasing Commissions and Tenant Improvements quickly and without issue.)

+ Usually own a portfolio of buildings. Quality landlords usually have multiple buildings in a portfolio. If one or more of those others buildings are not cash flowing well, those assets stand to benefit from the strength of the other buildings in the portfolio.

+ High level of service and property management: Quality landlords either provide "best in show" service and property management in house, or they hire top of the line third party mangers to provide the best service to the customers (the tenants) of their building.

We saw this on a first hand basis with some of the recent lease transactions PRS completed for Parkway Property's 1401 Enclave building. Parkway benefited from its reputation of a strong landlord who pays leasing commissions right away, has incredible property management, and the ability to build out suites at a high level. Competing buildings that were functionally similar but were in receivership or without the similar reputation were at a disadvantage to Parkway's building. The recent result was three leases resulting in 52K SF of absorption for the building in a very difficult and competitive environment.

So, as we continue to climb out of this soft market look for this two way street of Flight to Quality. Tenants will look to upgrade space, but they will also be looking to upgrade their building's ownership. Class A or B buildings with outstanding ownership stand to benefit.

Continental/United: What is the Impact on Houston?

The big question is of course, what is the definition of “significant presence”. Will it equate to 75% (or more…or less) of the 680,000 SF currently leased by Continental in Houston? Maybe once we see what kind of sublease space hits the CBD we’ll have a better picture of what United plans on doing.

CRE Cliffnotes (9.3.10)

I hope you enjoy this week’s articles. So, let’s get to it:

Who is Mariner Energy?:
• Link
• Two Sentence Overview: The company who owns the oil rig (Vermilion 380) that caught fire in the gulf yesterday has 328 employees (most of whom reside in the great city of Houston). The rig fire could complicate a pending merger between Mariner and Apache Corporation (Apache was going to pony up $2.7 Billion for Mariner pre rig explosion).
• One Sentence Takeaway: As my colleague Mike Fransen pointed out, the most damaging effect this explosion could have is one that gives the current administration more fodder to feed the desire to pursue job reducing policies like the drilling moratorium.

Texas Economic Indicators:
• Link
• Two Sentence Overview: Texas added 5,700 jobs in July staying at an unemployment rate of 8.2% ( US rate is 9.5%). Exports from Texas rose 3% (26% higher than this time last year), housing indicators weakened, and manufacturing leveled off.
• One Sentence Takeaway: This is just part of my weekly “The economy is bad, but at least we are in Texas” trend I like to incorporate.

Office Vacancy Expected to peak in 4th Quarter
• Link
• Two Sentence Overview: Office sector appears to be hitting a cyclical bottom. Demand remains weak but the rate of vacancy is slowing.
• One Sentence Takeaway: More “crystal ball stuff here” but it seems like everyone I have been reading is pushing out their recovery prognosis to second half of 2011 and beyond.


Hope everyone has a great Labor Day Weekend.

CRE Cliffnotes (8.27.10)

Good News for a change. (More CMBS Borrowers Pay Off Balloons in Time)
• Link
• Two Sentence Overview: CMBS borrowers successfully paid off 49.9% their balloon mortgages on time in July (the highest percentage since 2008). This is due to new found liquidity (in the form of foreign wealth funds, insurers, pension funds, and even some CMBS issuances) and record low interest rates.
• One Sentence Takeaway: While this is far too early to be a trend, this is definitely good news as the combination of funds from other equity sources and low interest rates are lessening the likelihood of the whole “next shoe to drop” scenario.

Office prices have declined 30.8% since 2Q 2007:
• Link
• Two Sentence Overview: Uncertainty in the broader economy has led to a drag in investment activity. However, the number and dollar volume of commercial real estate transactions is increasing.
• One Sentence Takeaway: As trades increase we can be more confident that buyers and sellers are coming to an agreement on price (i.e. a bottom), however there is allot of cash chasing too few deals which makes this whole “buyer/seller agreement on price” thing difficult.

C&W Houston Office 2Q Market Beat:
• Link
• Two Sentence Overview: This is a good one pager from C&W saying Office Class A space is likely to increase in vacancy, especially in the CBD, as vacant sublease space continues to come onto market through the rest of the year (Ugh). The “triple threat” of the drilling moratorium, the Continental/United Merger, and the status of NASA still has a lagging effect on the Houston economy.
• One Sentence Takeaway: With very little construction, we can at least look forward to a recovery that does not have an supply problem when the economy comes back and there is more certainty from these three core issues.

Infamous Houston Office WSJ Article:
• Link
• Two Sentence Overview: I am sure many of you saw this badboy on the WSJ, filled with color on the whole “triple threat” story. I looked for the positives in the article and at least Houston has a employment rate one point lower than the U.S.
• One Sentence Takeaway: Ok, ok, so there are hurdles we need to overcome…we will…and the space market will be stronger because of it as there will be very little new product out there once there is sustainable job growth.

CRE Cliffnotes (8.20.10)

In the midst of Favre returning and Clemens getting indicted I managed to come across some relevant (and hopefully) value added articles this week. But unlike Clemens, I am not going to lie… the news this week was more on the negative side then this optimist would personally like. But, in the spirit of Favre, I “owe it” to everyone to report what I see. So with these stretched links aside, let’s get to it:

WSJ: Tenants Taking less space
• Link
• Two Sentence Overview: Even though there has been a national rebound in office leasing activity (161.3 million SF of leases signed in the past 12 months or a 5.7% increase over the previous 12 months), existing tenants are taking less space than they had previously. Tenants either do not have a demand due to a downsized workforce or they are being more efficient with their space with collaborative work environments (less SF per employee).
• One Sentence Takeaway: I hate to be Debbie Downer but this is definitely a negative trend for the office market, however tenants consolidating and reducing space needs in the name of efficiency emphasizes the importance of having a “best in show” leasing and managing service to maximize occupancy and tenant retention (whether that be in house or a 3rd party provider).

Jobless Claims Up:
• Link
• Two Sentence Overview: If you are like me, you are tired of this report already as artificially created (stimulus induced) government jobs are decreasing initial claims for jobless benefits rose 12,000 to 500,000 last week. As this chart shows this could mean that even if jobless claims improve, it could be a while before there is positive growth in jobs.
• One Sentence Takeaway: Without question this was a disappointing figure that points to weakness in the job market, however the story remains for office owners that we do not have a supply problem and once jobs pick up (and therefore demand) – positive fundamentals will return.

Oily Issues:
• Link
• Two Sentence Overview: No question, the moratorium set by our fearless leaders in Washington is costing the Houston economy jobs (anywhere between 12K on the low end and 50K on the high end). In Houston, Chevron and HighMount have already laid off workers and Halliburton and Baker Hughes have relocated others.
• One Sentence Takeaway: The moratorium only exasperates an already difficult situation and one can only hope that leaders in Washington are persuaded to act accordingly.

Coffee and CRE (8/17/10)

Each Monday morning, my intention is to compile five relevant and recent articles about office real estate in general and the Houston market in particular. Each article will have a link, a two sentence overview, and a one sentence takeaway. I hope over time this provides value to you.

With that, let’s get to it. I hope you enjoy the inaugural “Coffee and CRE” email:

Distress in Office CMBS (that rhymes):

· Link

· Two Sentence Overview: Office CMBS loan delinquencies have shot up 78% in the past 9 months, however the office sector still boasts the lowest delinquency rate among property types. As we know, in Office it’s all about jobs, and the 71,000 private sector jobs created in July just did not cut the mustard (90,000 were expected).

· One Sentence Takeaway: Could this mean more attractive prices are on the horizon for office buyers? (there is a allot of coin on the sidelines sure hoping so)

Be Optimistic for Office…in a little while:

· Link

· Two Sentence Overview: While weak, national office fundamentals could be pointing to a inflection point in a recovery (note: I just wanted to say “inflection point” because it sounds so smart). Nationally some office owners are able to increase asking rates while many are coughing up more concessions to keep tenants creating a weird increase in asking rate decrease in effective rate scenario.

· One Sentence Takeaway: For all the horrible news on vacancy increases and rent rate decreases, there are favorable supply conditions which could bode well for a strong recovery when demand picks up.

Texas is Tops for Business:

· Link

· Two Sentence Overview: This will probably be a theme in this weekly email about how great the Lone Star State is. Bottom line is 70% of all new jobs in the US have been created in Texas since 2008 – awesome stat to throw around.

· One Sentence Takeaway: All things economic doom and gloom considered, it just feels warm and fuzzy knowing we have a state government that is going to incentivize the heck out of new companies moving to Texas thereby creating jobs, and creating demand for office space (Texas Stats Link).

Texas fighting Drilling Moratorium:

· Link

· Two Sentence Overview: Texas Attorney General Gregg Abbot filed a legal challenge to the 6 month Obama ban on deep water drilling. The case is based around the Federal government not involving Texas at all in its decision to ban drilling ( a state right).

· One Sentence Takeaway: Lawyers are the only guaranteed winner in this whole ordeal, and the uncertainty has definitely stalled growth, but with the spill capped and damage mitigated the long term effects may not be as bad as originally thought (although there is sure to be greater regulation).

Houston Q2 Deliveries and Construction:

· Link

· Two Sentence Overview: Five buildings totaling 78,828 square feet were completed in the Houston market area in the Second Quarter. The largest buildings that are underway currently are the Hines MainPlace (972,474 SF - 10% pre-leased ) and Hess Tower (844,763 SF - pre-leased.)

· One Sentence Takeaway: New construction has decreased and even large deliverables have a good percentage preleased which should bode well for the positive supply side story once demand returns.

Of Landlords and Moratoriums

Was Judge Feldman's ruling a sign of light?

It was George Bernard Shaw who appropriately said "If all economists were laid end to end, they'd never reach a conclusion". Such is the case for the varied opinions on how the Obama administration's moratorium on drilling will impact Houston office landlords. When New Orleans Judge Martin Feldman said "thanks, but no thanks" to Mr. Obama's six-month moratorium on deep-water drilling there was undeniable relief from office owners in the Energy Capital of the World. Was this the first sign of light to come from the darkening gulf waters after the spill? For the Houston office owner there had been little to cheer about since April 20th.

Before this "date which will live in infamy", things were looking pretty good if you were a Houston real estate bull. There seemed to be renewed optimism for a recovery that existed even in the face of job cuts at the Johnson Space Center and Continental Airlines shedding jobs through its merger with United. Even after these two major bumps in the road, the end of the first quarter of 2010 saw Houston adding jobs, leasing activity picking up, and positive absorption occurring. Happy days were seemingly here again -- or at least they were on the way.

And then the Deepwater Horizon explosion. Since that dark day uncertainty has seemed to expand at the rate of the oil streaming into the Gulf of Mexico. The offshore drilling moratorium that was imposed exponentially magnified the economic problem. The six month ban halted approval of new permits for deepwater projects and suspended drilling on 33 exploratory wells. This meant definite cutbacks in Houston's energy community, a decrease in jobs, and ultimately a decrease in office demand.

The Good Judge

Enter Judge Martin Feldman. The good judge halted the ban saying the government trivialized the economic impact of the moratorium. It was a heroic ruling, but it will more than likely not have the result many landlords hope for. The Obama administration pledged to appeal the ruling faster than Tony Hayward in a yacht race and most Analysts do not have high hopes that drilling will start up any time soon -- regardless if the appeal is unsuccessful. It seems that the only real winners in this whole ordeal will be the the lawyers involved. When drilling does resume, we can safely assume that energy companies will be forced to operate under stricter oversight which may lead to mitigated growth and fewer jobs.

One certain conclusion we do not need an economist to tell us is that Landlords will need the absolute best Leasing and Management team representing them in order to maintain and grow NOI through this storm of uncertainty. The following is a list of four characteristics an office owner should look for when deciding upon a leasing and management team:

• Landlord Reps and Landlord Reps only: In a market where tenants have an advantage in negotiations, it is especially important that the team representing the owner does not have any conflicts of interest that representing both tenants and landlords can present. An owner's team needs to be experts in their niche of office landlord representation in order secure the premium market rents and maximize tenant retention.
  
• Excellent Communicators: Landlords need a team that communicates in an efficient, effective, and timely manner to all parties involved. Landlords need a team of excellent communicators.
  
• Provides Goal Oriented Leasing: Landlords need a leasing and management team that can value engineer a lease to maximize the value of the asset knowing the full exit strategy of the owner. A good representative team will negotiate the lease that maximizes the value of the asset for the Landlord.
  
• Established Tenant Rep Broker Relationships: Landlords need a leasing and management team that has well established ties with the local tenant rep brokers and prides itself on being exceptionally responsive to tenant representative real estate brokers to ensure maximum broker cooperation. Tenant rep brokers are essential and critical and must be highly valued by the owner's team.

Parkway Realty Services "PRS" meets these four criteria and much more. PRS has an owner's mindset and a relentless focus on increasing their client's NOI in any market. With incredible service and dedication from an experienced and respected team, owners can expect long term asset appreciation -- even through drilling moratoriums. For more information about how PRS uses its 35 years of experience of representing owner's best interests check out: PRS Website.

Blue Skies for CBD?

Employers are hiring...manufacturers are producing...and consumers are, well...buying. It appears as if we have since the worst of my three least favorite words: "The Great Recession". Let's try and determine what this means for commercial real estate and specifically what this means for Central Business Districts (“CBD's”. As a good indicator for the office market as a whole, CBD's are a great place to start.

Here are some facts based on the latest CoStar Q1 National Office Report:

■Not too shabby activity pickup: Leasing activity nationwide is up 30% compared to Q1 last year. Not too shabby...
■Houston Rocks: Of note, Houston saw a 300% increase in leasing activity followed by Midtown South Manhattan at 217% and Denver/San Diego both at about 150% increase.
■Vacancy Rises even with increased activity: Averaged CBD vacancy increased from 14.7 to 15 percent.
■At lease vacancy is slowing: The pace of increase in vacancy is slowing across the US.
■Not getting as much "quan" for rents: The vacancy trend continued to impact rental rates which saw a 6.6% decrease from this time last year ...ouch NOI and valuations.

This has all happened even without a huge increase in jobs -- once hiring returns, one can only expect good thing friends. Our advice: Bite the bullet and accept the reality of higher lease up costs and more concessions. Go short on the leases so we can get back to a market that will really rally around hiring. Live to fight another day ... that day is coming around the corner very soon.