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Welcome to the Clay & Company Blog

Clay & Company is a Houston-based commercial real estate brokerage, investment, and auction company serving the needs of governmental agencies, financial institutions, insurance companies, and individuals 
throughout the State of T

Our regularly updated blog covers local and national news, events, and happenings affecting Texas and the commercial real estate industry.

Category Archives: Office

Real Estate Bright Spot: More Businesses Buying Office Space

The following is a summary of an article published on

  • With help from a government loan program for small businesses, small businesses are buying their own office space.
  • The amount of small businesses loans under this program rose at an annual rate of 16 percent in the three years after the end of the recession in 2009 to $4.45 billion, according to the Small Business Administration.
  • Commercial real estate prices are down 30 percent from the peak nationally.
  • Government-backed loans allow business owners to put up a down payment of just 10 percent, compared with the 25 percent to 40 percent demanded in a commercial property loan.
  • The qualification for SBA loans generally require that the business have less than $5 million in income and fewer than 500 employees.
  • The loans are typically for 20 years — compared with the standard 30 years for most fixed-rate home loans — and come with interest rates that are slightly below market rates.
  • Commercial property prices have become very attractive, says Walter Page, a director of research at PPR, a division of CoStar Group, a commercial real estate data company.
  • “There is an abnormal amount of opportunity now — if people want to buy, or fix and renovate, now is the time,” Page says.

See full article here.


Spec Office Development returns to West Houston in Full Force

The Woodbranch Development will offer very competitive rents, hovering near $20/sf.

The Woodbranch Development will offer very competitive rents, hovering near $20/sf.

Houston’s Energy Corridor is seeing a flurry of activity with multiple office developments announced in the last few weeks.  With less than 9% vacancy in class A properties, it’s no wonder developers are eyeing the area.

Trammell Crow, Mac Haik, Skanska, Lincoln Property Co., Stream Realty/Wile Interests, and Core Real Estate are all planning projects in west Houston.  The area’s  fundamentals appear to be right and if lenders can overcome their fears of over building (think Houston circa 1986), the developments may get off the ground.

Netherlands-based Stena Realty was the latest to announce its plans to build more class A space in the submarket.   Dubbed Woodbranch Development, the project will consist of two office towers with over 350,000 square feet of space.


NAR Commercial Real Estate Forecast: Major Improvements Across The Board

The May 2012 NAR Commercial Real Estate Forecast published today brings a bumper crop of good news about the economy and fundamentals in commercial real estate in all its sectors. Significant job growth, full recovery and growth in the apartment sector lead the report.

NAR Chief Economist Lawrence Yun points to new jobs as driving the recovery: “Ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending,” he said. “The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth.”

Jobs Coming Back In The Millions

Yun expects the economy to add 2 to 2.5 million jobs both this year and in 2013, on the heels of 1.7 million new jobs in 2011, assuming a new federal budget is passed before the end of the year. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”

In all areas of commercial real estate, indicators are in the green, according to the forecast:

Office Space Vacancy Projected To Fall

Vacancy rates in the office sector are projected to fall from 16.3 percent in the second quarter of this year to 16.0 percent in the second quarter of 2013.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.0 percent; and New Orleans, 12.6 percent.

Office rents should increase 2.0 percent this year and 2.5 percent in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 24.7 million square feet in 2012 and 48.0 million next year.

Retail Markets: Rents and Absorption Up

Retail vacancy rates are forecast to decline from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Fairfield County, Conn., at 4.0 percent; and Long Island, N.Y., at 5.0 percent.

Average retail rent should rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.

Industrial Markets Manufacturing Demand

Industrial vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.7 percent; Los Angeles, 5.0 percent; and Miami at 7.2 percent.

Annual industrial rent is expected to rise 1.6 percent in 2012 and 2.4 percent next year. Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013

A Boom In Multifamily

The numbers here seem to be the other shoe dropping concerning the pent-up demand for apartment housing we wrote about here at The Source in January:

The apartment rental market – multifamily housing – is likely to see vacancy rates drop from 4.5 percent in the second quarter to 4.3 percent in the second quarter of 2013; apartment vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are New York City, 2.1 percent; Portland, Ore., at 2.3 percent; and Minneapolis at 2.4 percent.

After rising 2.2 percent last year, average apartment rent is expected to increase 4.0 percent in 2012 and another 4.1 percent next year. “Such a rent increase will raise the core consumer inflation rate. The Federal Reserve, in turn, may be forced to raise interest rates, possibly as early as late 2013.”

Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.



Construction cost update from Kirksey Architecture

Kirksey Architecture recently released its Annual Construction Cost Update for 2012 compiled by statistics from over 20 area construction firms.

Their findings show a slight increase in per square foot construction costs for each category including: one-story flex office buildings, low-rise office buildings, mid-rise office buildings, high-rise office buildings, medical office buildings, and parking structures. Commercial tenant improvements for a typical 25,000-square-foot, full floor office buildout are $27 to $45 per square foot, up $2 per square foot since 2011.

The report says, “construction costs have stabilized at a low point over the past year and have started to move upward while a few material costs and transportation costs have risen.”

Competitive construction costs and low interest rates make now a favorable time to build.

See the specific costs for each category and the full report here.


Houston Office and Industrial Markets Start Year with Positive Absorption

HOUSTON — (April 24, 2012) —

Houston Office Market

Houston’s office market ended the first quarter with a total of 699,266 square feet of positive net absorption, according to quarterly market research compiled by Commercial Gateway, the commercial division of the Houston Association of REALTORS®.

Reversing last year’s trends, Class B space accounted for 86.3% of the first quarter‟s positive activity, recording its second consecutive quarter of positive activity. This year paints a different picture for Class B properties than in recent years; absorption in First Quarter 2011 was a negative 468,093 square feet for Class B and overall negative 264,293 citywide.

This quarter, Class A buildings citywide recorded negative absorption after seven consecutive positive quarters. Overall, seven of the 13 market areas, including the Central Business District (CBD), recorded more space coming on the market than being taken off, with several large former sublease spaces entering the direct market during the first quarter.

officechartThe three submarkets which recorded the largest gains in absorption were the Energy Corridor, North/The Woodlands/Conroe and the Northwest. One large lease committed in the Northwest but not yet counted as absorbed was Noble Energy‟s 497,447 square feet in a former HP building; the building is reported to be undergoing renovations with the company planning a move in Second Quarter 2013, which is when the space will be recorded as absorbed.

The current 12.6% vacancy rate is the lowest vacancy since Second Quarter 2009‟s 12.5% rate, and 1.3% lower than that same period last year. Selected buildings are seeing slight increases in rental rates, but the overall annual, weighted averaged, gross rental rate quoted for this quarter of $22.78 is slightly lower than last quarter‟s $22.90 rate and lower than the same period last year, which was $23.19. The CBD’s quoted rates also showed minimal decreases from the same period last year, reporting $31.46 today vs. $31.60 then.

Overall sublease space, at 2.2 million square feet, decreased almost 300,000 square feet from last quarter, and a total 21.5% decrease from the same quarter a year ago. Sublease space is either being leased at very competitive rates or returned as direct space as lease terms move closer to expiration dates.

Construction activity is looking up with nine buildings currently under construction, four in The Woodlands, two each in the both the Uptown and West submarkets, and one building in the North Belt West submarket. Scheduled for completion in 2012 are the two properties in the West and the one property in the North Belt West submarkets. Total under construction is 1.97 million square feet, following completions in 2011 of six buildings totaling 2.2 million square feet. The Woodlands is home to the largest number and size of buildings and includes the 549,260- square-foot Anadarko Tower II, the 234,589-square-foot Waterway 3, and two 32,000-square- foot buildings in the Black Forest Technology Park. Several other projects in the West, The Woodlands and Westchase have been announced for starts later this year.

Houston Industrial Market

Houston‟s industrial market continues to improve with positive absorption recorded and limited major construction on the horizon, according to statistics

industrial chart

released by Commercial Gateway. With a ninth consecutive quarter of positive absorption, the industrial market has seen a gradual decrease in its vacancy rate and a stabilization of rental rates. Vacancy overall is down to 7.2%, compared to 8.4% a year ago.

Net absorption in the first quarter totaled almost 1.3 million square feet, which is triple the amount noted in First Quarter 2011, but down from last quarter‟s almost 2.6 million square feet. Warehouse/distribution properties recorded about 1.1 million square feet this quarter, continuing a five-year trend of positive absorption and accounting for 85.5% of all absorption.

Properties classified as manufacturing are reporting the lowest vacancy rate of 4.6%, with crane-ready buildings still in short supply. Properties classified as warehouse/distribution represent about 72.5% of the total market. The two largest leases of the quarter were Gulf Winds International’s 247,240-square-foot lease at Port Crossing and Francesca’s Collection‟s 217,869-square-foot lease at Clay Point Distribution Park.

Rental rates have increased marginally during the last four quarters, with this quarter’s quoted, weighted averaged annual rental rate of $5.65 per square foot slightly higher than reported a year ago. Sublease space has not fluctuated much during the last two years, with 1.8 million reported in the first quarter, which represents a slight drop from fourth quarter but is about the same as this time last year.Construction activity is still brisk, with build-to-suits leading the way. Currently, 43 buildings in 33 projects totaling about 2.2 million square feet are under construction, with only the largest, the 475,000-square-foot, build-to-suit for Ben E. Keith Food Distribution Center, scheduled for completion in 2013. All others should be completed in 2012, with 13 properties slatedforcompletioninthesecondquarter. Thispastyearalsorecordedthecompletionof22 buildings totaling 1.6 million square feet, with nine of those representing 802,027 square feet built specifically for individual companies.

Source: Press Release


Report: Austin office investment sales to surge

flagThe flow of office investment sales in Austin is expected to increase this year due to an improving economy and a tightening supply of office space, according to the 2012 Annual Report published by Marcus & Millichap.

About 27,000 new jobs will be added in office this year, predominantly in the health care and education sectors.

Only 50,000 square feet of new office space will be delivered this year, according to the survey. Thus, vacancy rates are dropping to an average of 19.2 percent this year. Asking rents will rise about 2.1 percent to $26.14 per square foot with effective rents increasing about 3.1 percent to $21.40 per square foot.

Though cap rates remain lower than in other parts of the state, the favorable economic outlook should attract a significant amount of capital to local office properties.

Excerpted from the Austin Business Journal


CRE Show: Owner-Occupied Real Estate Is Growing in Appeal

In a market featuring rock-bottom building prices and record-low interest rates, now is an ideal time for businesses to consider purchasing instead of leasing their real estate.

That was the consensus of the panelists on the most recent episode of the “Commercial Real Estate Show,” which provided a look at the factors making owner-occupied real estate a more attractive option for businesses.

Show host Michael Bull, the president and founder of Bull Realty, said the possibility of rent spikes is one reason to consider buying.

“These prices are so low, it’s incredible,” he said. “With the lack of new construction [in recent years], I think we’re going to see some huge rents in about five years.”

Banks also are enthusiastic about owner-occupied real estate, noted Brant Standridge, a state president for BB&T.

“It’s very, very attractive for banks,” he said. “Financing is readily available, and banks are requiring less and less equity.”

Firms that own their own buildings have a valuable tool for acquiring the funds needed to grow their operations, panelists observed.

“Businesses that are looking to expand, particularly small businesses, often use their real estate,” said Brent Baker, a managing partner with CIB Partners LLC. “It’s an attractive way to get long-term financing and to accomplish some things: expansion of marketing programs, adding equipment, any number of things they may want to do.”

Companies also can dramatically increase their wealth by buying a distressed building, occupying it and then later doing a sale-leaseback.

“The sale-leaseback market and the single-tenant net lease market are as hot as firecrackers,” Bull said. “The value and the demand for these fully occupied properties are just huge.”

Possible changes in accounting rules provide yet another reason for firms to consider buying real estate. The Financial Accounting Standards Board has proposed changes that would classify leases as liabilities on balance sheets.

“What happens when your liabilities go up but your equity doesn’t change?” said Jeff Olson, a partner with Babush, Neiman, Kornman & Johnson. “Your leverage ratios go off the charts.”

Implementation of the changes could spur some businesses to buy instead of lease their buildings.

“They’ll say, ‘I’ll put the debt on my books but I’ll get the asset, and I’ll have an investment,’” Olson added.

He predicted that, if passed, the new rules wouldn’t be implemented until 2014 at the earliest.

Daniel Latshaw, a partner with Bull Realty, said markets such as Atlanta, Phoenix and Las Vegas could offer particularly good opportunities for purchasing buildings. “But don’t generalize,” he cautioned listeners. “Look closely at your market or submarket.”

The full show is available for download at The next “Commercial Real Estate Show” will be available April 12 and will provide an update on the U.S. office market.



How Corporations Evaluate the Decision to Own Real Estate

whartonThis report by the Wharton School of the University of Pennsylvania says there is no single answer as to whether a company should own or lease its real estate. See below for the reports summary and conclusions.

One of the most important capital decisions made by corporations is whether they should own or lease their operating real estate (offices, industrial and warehouse facilities, and retail space). This decision is generally viewed by corporations as a trade-off between the pres- ent value of rental payments versus that of the operating costs of owning the real estate, net of expected capital appreciation and the depreciation tax benefits from ownership. The rule of thumb is that only if the present value of future rent is less than the present value of costs of self-ownership of the space (net of depreciation benefits, and expected property appreciation), should the firm lease rather than own. However, as this paper demonstrates, this analysis is fundamentally flawed, lead- ing companies to own far more corporate real estate than is economically justified. This is true in countries such as Germany, where corporate users own as much as 75 percent of their real estate, as well the United States, where roughly 40 percent is owned by corporate users.

The correct model for the own-versus-lease decision must compare the present value of profits the corporation expects if it leases versus the present value of expect- ed profits if it decides to own its real estate. The key insight provided by this corrected approach is that the own-versus-lease decision revolves around the com- parison of the lost profits associated with moving corporate capital from core operations to real estate, versus the profits achieved by real estate owners. That is, capital freed up from real estate ownership generates the company’s core business rate of return, while rents reflect the rate of return earned by landlords on their real estate capital. Since most companies have higher expected rates of return in their core business than are achievable through real estate ownership, this decision model indicates that the vast majority of corporate real estate should be leased. The intuition of this result is simply that by moving capital from low-yielding real estate to high-yielding core operations, companies increase profits.

The model [in this paper] demonstrates that there is no single answer as to whether a company should own or lease its real estate. Instead, it depends upon the nature of the firm, the nature of the real estate market, the type of the real estate, and taxes. But the model demonstrates that high-multiple firms with high core rates of return, particularly if they are looking for real estate that is readily available in a competitive real estate environment, should lease. The model also suggests that for idiosyncratic properties in less competitive property markets, companies with low rates of return in their core business will gain by owning their real estate, particularly if the rental market is very inefficient. Our model can be easily applied to every property to determine if the firm should own or lease the property. A critical insight is that shifting dollars from EBIT-DA to rent can enhance corporate value, as the capital is allocated to higher return core businesses, generating greater bang on the firm’s limited capital, by freeing capital from relatively low-yielding real estate to high-yielding corporate operations. This decision also allows corporate management to focus its energies on its core competencies, which generally both lowers risk and adds value.



Tomorrow’s Office Space

If portfolio managers and brokers hope to compete in the changing corporate real estate landscape, they need to understand how companies are preparing for tomorrow’s office.

So, what does tomorrow’s office look like?

Recent studies suggest that we are advancing toward a smaller but smarter office that is more compact and collaborative and increasingly mobile.

Many companies originally sought out more efficient office space as a way to save money and resources during tough economic times and found through studying their occupancy needs, they had excess space that could be shed or used more efficiently. However, the continual evolution of technology and changing demographics will allow smaller, more efficient, and collaborative office space to become the norm.


The Building Owners and Managers Association (BOMA) Foundation and the Georgetown University School of Continuing Studies and its Masters of Professional Studies in Real Estate Program brought together the best and brightest minds in real estate on November 10 for their second annual Thought Leader Symposium, 2025: A Vision for Commercial Real Estate.

The panel of experts said to remain competitive, the existing stock of commercial real estate must be reconfigured to keep pace with a mobile, Internet-connected workforce; ongoing changes in technology, and to support the way companies are structuring their staffs to foster more collaboration and efficiency.

Martha A. O’Mara, PhD, CRE, managing director of Corporate Portfolio Analytics, whose firm advises large companies and organizations that collectively occupy 500 million square feet, said increased density in office buildings is here to stay, and she foresees radical changes in the workspace environment.

According to Teknion’s recent Workplace of the Future study, 46 percent of companies surveyed currently employ cloud computing — which allows employees to access company data from any computer. Another study by Cisco found that three out of five workers say they don’t need to be in the office to be productive anymore. With a laptop, tablet, smartphone, or some combination of those devices, many office employees can work anywhere they can get online.

This also means that time spent in the office is often dedicated to meetings and other face-to-face activities rather than sitting at a desk.

With technology supporting an increasingly mobile workforce, “people are not going to want to come in to a workplace unless it is an exciting environment,” said O’Mara. “The ideal situation may be where you go into the office two or three days per week and work remotely the other days, which reduces our carbon footprint by 20% – 40% and has a huge impact on improved quality of life.” It also makes people more productive when they do come into the office, she said.

O’Mara points out that changing demographics will also contribute largely to this new office structure. By 2025, about half of the baby boomers will be out of the workplace, she noted.

The average age of employees at Goldman Sachs headquarters in Manhattan is 32, said James B. King, AIA, principal of AREA Advisor LLC King. “Half the people working there are millenials.”

The working habits of millenials, or Generation Y, and office needs are radically different from what the industry is used to providing. Perkins & Will Principal Joan Blumenfeld noted that Gen-Xers and Millenials are more comfortable blending work and home life than their baby boomer parents.

According to Patricia Lynn, CCIM, principal of consulting firm Lynnk, the millenials, are using three distinct places: the traditional corporate HQ about 30% of the time, the home office another 30% of the time, leaving a giant opportunity in what Lynn called “the third place – a kind of Starbucks on steroids. She says new working spaces will not be based on lease occupancy but instead will be based on membership – anywhere from $150-$425 a slot – where the millenials stop to connect, collaborate and create.

Blumenfeld also noted a distinction in workplace trends among different types of firms.

Large-scale financial services, consultants and other professional services firms place increasing value on supporting their employees outside the office to encourage more client-facing time. On the other hand, technology firms and other creative process-focused companies are seeking to make their workspaces more accommodating. They want to keep employees interacting together in the same environment.

As such, companies are changing their corporate environments is by combining the work environment with elements of a home environment preferred by new generations of workers, as opposed to baby boomers who prefer to keep the two separate. Companies are altering their workspace design to incorporate more open floor plans and “common areas” with extensive seating and collaboration areas, while providing employees the technology to connect from anywhere.

It’s important to keep these trends in mind when investing in and managing buildings. Can you reinvent your space for a tenant with these changing needs?

“If the last 15 years are any indication of the pace of change in our industry, the next 15 will be phenomenal,” said BOMA Foundation Chair Marilyn Wilbarger. “Our thought leaders are going to give us a lot to think about in terms of how we should strategize to ensure that our future buildings are places where people want to work.”

Please note the author started this piece from her home office where she works on Wednesdays and finished it from her shared office space (pictured) on Thursday.

Will We Need Any More Office Space?
Resizing or Right-Sizing?
Tomorrow’s Office Worker and Their Spaces


Energy Spurs a Recovery in Houston via The New York TImes

Energy Spurs a Recovery in Houston
Published: February 7, 2012
Rising oil prices and a boom in shale exploration are leading companies to add office space in the Houston area, most notably Exxon Mobil.

HOUSTON — In most cities, companies are holding tight, mothballing office expansions and delaying new hires. But not in Houston.

Powered by a rise in oil prices and a shale exploration boom, Houston is the first major metropolitan region to regain all the jobs it lost in the recession. The region added about 76,000 jobs last year, according to the Texas Workforce Commission, and is on pace to pick up tens of thousands more this year.

Oil and gas companies, from the biggest names like Exxon Mobil to the smallest independents, are dusting off plans to expand, relocate or put up new buildings. Last year, 1.8 million square feet of commercial space was vacuumed up, and real estate brokers expect the same or greater this year. “No question, it’s energy,” said Jim Arket, a senior vice president at Grubb & Ellis in Houston. “That’s been the plus multiplier of Houston.”

The resurgence can be partly tied to the lifting in fall 2010 of the government moratorium on deepwater drilling in the Gulf of Mexico after the BP oil spill. The bulk of the gulf’s drilling and profits comes from those offshore waters. Shale drilling has also bolstered balance sheets.

See full article here.