Real Estate Rumblings

America's new superpower city? Houston blows by New York in key building metric, tops in U.S. by wide margin

New superpower city? Houston blows past New York in key building mark

Construction cranes work under a blue October sky over Main Street in downtown Houston October 2014
Construction cranes work under a blue October sky over Main Street in downtown Houston. Photo by Ralph Bivins
Workmen construct the lower levels of Hines' 48-story tower at Main Street and Texas Avenue October 2014
Workmen construct the lower levels of Hines' 48-story tower at Main Street and Texas Avenue. Photo by Ralph Bivins
Transwestern is developing a skyscraper in Uptown for BHP Billiton October 2014
Transwestern is developing a skyscraper in Uptown for BHP Billiton. Photo by Ralph Bivins
Debris is cleared from Houston Club implosion site. A 35-story office tower will be built there by Skanska October 2014
Debris is cleared from Houston Club implosion site. A 35-story office tower will be built there by Skanska. Photo by Ralph Bivins
Hilcorp is constructing this building on the former Macy's site in downtown October 2014
Hilcorp is constructing this building on the former Macy's site in downtown. Photo by Ralph Bivins
Construction cranes work under a blue October sky over Main Street in downtown Houston October 2014
Workmen construct the lower levels of Hines' 48-story tower at Main Street and Texas Avenue October 2014
Transwestern is developing a skyscraper in Uptown for BHP Billiton October 2014
Debris is cleared from Houston Club implosion site. A 35-story office tower will be built there by Skanska October 2014
Hilcorp is constructing this building on the former Macy's site in downtown October 2014

When it comes to construction cranes, Houston is leading the nation.

Houston has more than 50 office buildings under construction totaling 17 million square feet, far more than any other city in America, according to the CBRE commercial real estate firm.

Houston has more than twice as much office construction as the No. 2 city — New York.

The number of carpenters, bricklayers and painters working in Houston right now is off the charts. The total of building permits issued in September was the highest monthly total ever, says the Greater Houston Partnership. Houston’s commercial construction permits were up a whopping 193 percent last month.

To say optimism is high in the Houston office market is an understatement. In addition to the buildings actually under construction, there are more than 100 proposed office projects on the drawing boards — which may or may not get built.

 The number of carpenters, bricklayers and painters working in Houston right now is off the charts. The total of building permits issued in September was the highest ever. 

When construction gets this robust, you get kind of worried. After all, this is Houston, Texas, which was the foreclosure capital of the world in the late 1980s. We developed the term “see-through buildings” because so many of the new office towers stood completely empty for years, waiting for their first tenants.

So, is Houston getting overbuilt? Do we have a bubble developing?

“The short answer is no,” says office leasing veteran Sanford Criner of CBRE.

The construction surge is tapering off, Criner says. As long as the spigot slows down the flow of new projects pretty soon, there shouldn’t be any probably filling up the new buildings, Criner believes.

Houston’s economy leads the nation in job growth. Almost 120,000 new jobs were created over the last 12 months — a huge boom in hiring and that means companies need more office space.

So right now Houstonians are watching major alterations to the city’s skyline — in downtown, Uptown and in the hot suburban markets, also.

Houston’s biggest office tower construction zones:

1. The Woodlands. The biggest construction project in Houston right now is the Exxon Mobil campus south of The Woodlands. When completed next year it will have 20 buildings with 10,000 employees, including some 2,000 employees being transferred in from other parts of the country.

But there’s more underway in The Woodlands area, including Hughes Landing and Southwestern Energy’s building on Interstate 45.

2. Downtown. Hines is dominating the downtown construction scene right now with its 609 Main at Texas, catty-cornered from the Rice Lofts. Work began on the building this summer and the 48-story skyscraper will be ready in 2016. Also, Hilcorp is constructing a downtown building on the site of the now-defunct Macy’s store.

Skanska just demolished the Houston Club building and it plans to build the 35-story Capitol Tower there. Not yet started, but clearly on the downtown drawing boards: Crescent’s Six Houston Center, a 50-story tower for Chevron and the 41-story One Market Square.

Will they all be built? Probably not.

3. Energy Corridor/West Houston. Too many to list. A bit closer in on the Katy Freeway, you have MetroNational doing a big building in Memorial City for Air Liquide and Midway is planning more office space at CityCentre. In the Energy Corridor, Trammell Crow, Hines, Skanska and others are doing projects.

4. Others around town. Transwestern is building a huge tower in Uptown for BHP Billiton. A one million square-foot tower is being built in Westchase for Phillips 66. And Midway has a nifty infill project near Kirby Drive called Kirby Grove.

If this sounds like a phenomenal amount of office construction, you’re right. It is.

But even though there are a lot of new buildings rising, much of the new office space is pre-leased before the groundbreaking, says Sara Rutledge, CBRE director of research and analysis.

Vacancies are shrinking and rental rates are up in Houston. For the prime “Class A” buildings, rents are up a sizable seven percent over a year ago, Rutledge says.

And even though the current building boom with 17 million square feet under construction is impressive, it doesn’t match up to the early 1980s when Houston was crazily overbuilt.

Over a five-year period in the early 1980s, skyscrapers rose like mushrooms after a thunderstorm and 70 million square feet was constructed, highlighted by 24 million square feet in 1983 alone, CBRE reports.

But there’s always a downside. The current construction boom could bring some pain into the office market.

The new office buildings will likely do just fine. But office towers that are getting a little long in the tooth will be challenged. The 30-year-old skyscrapers that used to be the cat’s pajamas may be forced to reduce rents or suffer increased vacancy.

Older generation buildings need to make major upgrades — with new elevators, new air conditioning, better restaurants — or else they will slip into the lower tier, Criner says.

Ralph Bivins, editor of Realty News Report, is a past president of the National Association of Real Estate Editors.

Top U.S. Cities for Office Construction

1. Houston - 17.1 million square feet

2. New York – 7.9

3. San Jose – 7.3

4. Dallas/Ft.Worth – 6.1

5. Washington, DC – 5.4

6. San Francisco – 4.9

7. Boston – 4.7

8. Seattle – 3.8

9. Chicago – 3.6

10. Philadelphia - 3

Ranked by Millions of Square Feet. Third Quarter 2014

Source: CBRE Econometric Advisers