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