When will the next skyscraper be built?

[Howard Huge]

Just want to hear yalls educated guesses as to when Houston will recover from the recession and build another skyscraper.

[travelguy_73]

Since two are going up downtown right now, my guess is it will be at least 5 years before the economics support another, and even then it will likely be a "shorty."

[TheNiche]

Just want to hear yalls educated guesses as to when Houston will recover from the recession and build another skyscraper.

Define skyscraper.

[Howard Huge]

Define skyscraper.

For this thread, lets say 40+ stories, and lets say in downtown proper.

[TheNiche]

For this thread, lets say 40+ stories, and lets say in downtown proper.

I think four years is a good minimum number, but that's being optimistic.

[ricco67]

Define skyscraper.

Here's a link.

sky

sky⋅scrap⋅er /ˈskaɪˌskreɪpər/ [skahy-skrey-per]

–noun

1. a relatively tall building of many stories, esp. one for office or commercial use.

2. Architecture. a building of exceptional height completely supported by a framework, as of girders, from which the walls are suspended, as opposed to a building supported by load-bearing walls.

Just sayin'.

[TheNiche]

Just sayin'.

And I'm just sayin' that the term "skyscraper" is used in McAllen to describe a pathetic and lonely 17-story building. And according to your dictionary post, that'd be correct.

For downtown Houston, though, maybe 40 stories isn't enough to be considered "relatively tall".

[ricco67]

in downtown, anything less than 30 stories is a disappointment.

[Howard Huge]

I think four years is a good minimum number, but that's being optimistic.

So in your opinion do you think we'll be out of this recession by then?

And i mean in terms of how weve been hearing so much of "oh X project was put on hold because of the economy" or "The pavilions isnt fully leased out because of the economy" or "No one is lending money because of the credit crunch", financial crises, etc etc...

[LTAWACS]

My sources tell me another one will break ground in the latter part of 2010.

[citykid09]

I have become a little optimistic lately, I think you will start to hear more announcements or proposals for not just skyscrapers, but mixed use developments as well by this summer hopefully!

[ricco67]

My sources tell me another one will break ground in the latter part of 2010.

Oh?

Anything you can share without revealing sources?

[TheNiche]

So in your opinion do you think we'll be out of this recession by then?

And i mean in terms of how weve been hearing so much of "oh X project was put on hold because of the economy" or "The pavilions isnt fully leased out because of the economy" or "No one is lending money because of the credit crunch", financial crises, etc etc...

Recessions are only defined by the length of time during which the economy is contracting, so yes, I think that this one already is or will be over. But that only means that we're at the lowest point. It isn't enough that the recession is over; what matters is that that we have recovered to the extent that rental rates and vacancy rates are once again adequate to justify the relatively high cost of new construction. Also, whether or not there will be another separate 'double-dip' recession in the near term is up for debate, and I think that it's possible if not likely. So that'd be the first problem is that the fundamentals are weak.

The second problem is that the terms available for debt financing are not nearly as friendly and show few signs of getting better for as long as the commercial foreclosure situation remains bleak. ...and believe me, the worst is yet to come on that front. If there's any one thing that could trigger a second financial crisis leading us into a 'double-dip' recession, it's the projected rate of commercial real estate foreclosures. Even if we avoid a financial crisis, commercial real estate transaction values are going to be suppressed by foreclosures for years to come.

And that, combined with poor fundamentals, still-high hard costs, and expensive debt...well, it makes for a bleak outlook. And that sucks for me, because I used to be the guy that worked through all of these issues and got big projects to pencil out as profitable. Short of switching over to appraisal (which is kind of a dead end), my career is over.

[KinkaidAlum]

KBR's news certainly helps downtown.

We still haven't heard anything about Devon Energy's plans... I am thinking that if they don't move into Main Place then we're likely to hear something about 5 Allen Center again (the proposed 50 story tower).

Class A space in downtown is still healthy. Maybe not healthy enough for a spec tower, but tight enough for a highly pre-leased tower to rise.

[TheNiche]

KBR's news certainly helps downtown.

We still haven't heard anything about Devon Energy's plans... I am thinking that if they don't move into Main Place then we're likely to hear something about 5 Allen Center again (the proposed 50 story tower).

Class A space in downtown is still healthy. Maybe not healthy enough for a spec tower, but tight enough for a highly pre-leased tower to rise.

The downtown sublease space competes directly with the direct lease space, however is excluded from most market data. So that's part of what makes it look like it's still OK. Vacancy is a lagging indicator, direct-lease vacancy even more so.

[Howard Huge]

The downtown sublease space competes directly with the direct lease space, however is excluded from most market data. So that's part of what makes it look like it's still OK. Vacancy is a lagging indicator, direct-lease vacancy even more so.

Is there any estimate available of the occupancy percentage of all Class A space in downtown, more simply, how full is our downtown?

[BaylorGuy05]

Is there any estimate available of the occupancy percentage of all Class A space in downtown, more simply, how full is our downtown?

Class A CBD space was 91.8% occupied at year-end with Class B space being 86.6%.

[Howard Huge]

Class A CBD space was 91.8% occupied at year-end with Class B space being 86.6%.

Thank you!

I wonder how that compares with other top 5 U.S. cities

[TheNiche]

I wonder how that compares with other top 5 U.S. cities

I would expect pretty favorably. We're only a relative newcomer to this recession. Most other cities have been slogging through it for years now.

[BaylorGuy05]

I am a commercial appraiser and happen to be writing up a report about the state of the Houston market. Niche is right, we entered the downward spiral later and are expected to come out sooner. However, I have talked to brokers from many of the large firms and all agree 2010 is going to be a difficult year for Houston, especially on the leasing side.

[Howard Huge]

I am a commercial appraiser and happen to be writing up a report about the state of the Houston market. Niche is right, we entered the downward spiral later and are expected to come out sooner. However, I have talked to brokers from many of the large firms and all agree 2010 is going to be a difficult year for Houston, especially on the leasing side.

So do you have any idea how say a New York or a Chicago are doing compared to Houston, i.e are they looking at any significant new skyscraper construction?

[BaylorGuy05]

The only construction taking place in any of the large markets was started right before the recession (for example MainPlace) or has single tenant commitments (Hess Tower). Any new projects have been put on hold as lenders are now requiring a large amount of preleasing activity in order to get financing. Good thing MainPlace was started prior to the crash, because Hines would never be able to swing it in today’s market given the lack of interest and leasing at the building. No new major (multi-tenant) projects will be financially feasible until the amount of existing vacant space is absorbed and rents start climbing again.

[editor]

So do you have any idea how say a New York or a Chicago are doing compared to Houston, i.e are they looking at any significant new skyscraper construction?

I can't speak for New York, but here in Chicago there are no new buildings going up.

The last two commercial skyscrapers went up last year and there's enough vacant office and retail space to last a very long while. Residential is even worse off. A few big towers finished last year, and there are a few others that are coasting on their own momentum toward completion this year, but I'd be surprised to see any new ground broken on a skyscraper in Chicago in 2010.

Heck, residential is so bad that some of the brand new condo towers are auctioning off the units just to get them sold. Three years ago, $600k got you a very small townhouse in a dodgy neighborhood. Today, $600k gets you two bedrooms on the 70th floor downtown.

There are at least six residential towers on hold that i know of. Probably more that I don't know about.

[citykid09]

So do you have any idea how say a New York or a Chicago are doing compared to Houston, i.e are they looking at any significant new skyscraper construction?

To me it always seems as if cities like New York, Chicago, Miami, etc are putting out way more development than Houston and their economies are not doing as well as Houston's. And this past year and even now on all the positive city ranking list Houston is usually #1. Fastest growing, best place to find a job etc, but it seems that the substantial development that comes along with it is still going to the other cities and not Houston. Maybe it just seems that way, but when will it be Houston's turn to develop like its no tomorrow like all the other cities did in the past few years and Houston sat pretty much dormant? It was just about to happen right before the bust. Just Houston's luck!

[Howard Huge]

To me it always seems as if cities like New York, Chicago, Miami, etc are putting out way more development than Houston and their economies are not doing as well as Houston's. And this past year and even now on all the positive city ranking list Houston is usually #1. Fastest growing, best place to find a job etc, but it seems that the substantial development that comes along with it is still going to the other cities and not Houston. Maybe it just seems that way, but when will it be Houston's turn to develop like its no tomorrow like all the other cities did in the past few years and Houston sat pretty much dormant? It was just about to happen right before the bust. Just Houston's luck!

It's always seemed that way to me too. I was in New York this past new year and there seemed to be lots of buildings going up in Manhattan as though it was the norm because there are already so many there they just get swallowed up in the ocean of skyscrapers and go unnoticed. There was one residential in particular going up near the Empire State that just made me say wow, Houston Could never support somethin like this.

[AtticaFlinch]

To me it always seems as if cities like New York, Chicago, Miami, etc are putting out way more development than Houston and their economies are not doing as well as Houston's.

QED.

Still though, I have a hard time understanding how it can be seen as though Houston isn't building when I can clearly see cranes all over town. Granted, it's not Dubai level construction, but who wants that anyhow?

[Houston19514]

KBR's news certainly helps downtown.

We still haven't heard anything about Devon Energy's plans... I am thinking that if they don't move into Main Place then we're likely to hear something about 5 Allen Center again (the proposed 50 story tower).

Class A space in downtown is still healthy. Maybe not healthy enough for a spec tower, but tight enough for a highly pre-leased tower to rise.

Two thoughts on Devon. (1) With Hess leaving Allen Center, there's a good deal of space opening right there for them. I'm thinking plenty of space, especially given the second thought: (2) Devon is in the process of selling their international and Gulf of Mexico assets. That's what their Houston offices handle. If they sell the assets piecemeal, (which seems to be direction they are going), Devon's Houston presence and their Allen Center operations could be hugely scaled back or eliminated entirely. With or without MainPlace, I wouldn't be counting on Devon triggering the construction of 5 Allen Center.

[LTAWACS]

I can't speak for New York, but here in Chicago there are no new buildings going up.

The last two commercial skyscrapers went up last year and there's enough vacant office and retail space to last a very long while. Residential is even worse off. A few big towers finished last year, and there are a few others that are coasting on their own momentum toward completion this year, but I'd be surprised to see any new ground broken on a skyscraper in Chicago in 2010.

Heck, residential is so bad that some of the brand new condo towers are auctioning off the units just to get them sold. Three years ago, $600k got you a very small townhouse in a dodgy neighborhood. Today, $600k gets you two bedrooms on the 70th floor downtown.

There are at least six residential towers on hold that i know of. Probably more that I don't know about.

Wasnt there one or two resi towers that were abandoned halfway through construction some time ago? What ever became of those?

[TheNiche]

So do you have any idea how say a New York or a Chicago are doing compared to Houston, i.e are they looking at any significant new skyscraper construction?

Some comparative office stats from Grubb & Ellis are provided below. But be careful about reading too much into these snapshot indicators, especially as they pertain to the likelihood of new construction. Each city has unique factors affecting it, especially with respect to their economy, geographic barriers to entry as reflected in the land prices, political barriers to entry, property tax and corporate income tax rates, unionization rates within the construction trades, exposure to the credit crisis, and submarket desirability. Additionally, these data only indicate asking rents, not actual effective rents that take negotiated concessions into account.

Dallas is a good case in point. Downtown Dallas has nearly as much vacancy as downtown Detroit and lower rental rates to boot. I don't know of any developer that'd be interested in starting a project there even if financing were available. However, just opposite a freeway from downtown is an office submarket with buildings that are still under construction, where vacancy is 14.2%/16.6% and rents for Class A space are $32.03 psf. That's not horrible (like Atlanta), but it doesn't reflect in the CBD stats.

Chicago is another good case in point. On the surface of things, it looks slightly distressed but still has relatively high rents. It looks like they ought to still be able to cope with things. But in truth, the prevalence of "zombie buildings" is distressing the whole market, and the impact to investors has yet to be fully reflected in a snapshot of market data.

New York is probably the best case in point that there ever was. Out of every city on this list, rents there are the highest and vacancy is the lowest. But .and is expensive, the bureaucracy is tough, union labor is expensive and entrenched in practically every construction and property management function, and taxes are utterly ridiculous. There was a time in the not-so-distant past that that didn't matter. Class A rents used to average about $90 psf, concessions used to be unavailable, and vacancy used to be <4%. So stuff got built--sometimes--and even then, only eventually. But in the context of where it had been, NYC has suffered more than any other city, and with current owners unable to refinance, there will be a tremendous glut of inexpensive office buildings available to any of the investors left standing for many years to come. Why build when you can buy something relatively new for bottom dollar? Aside from one project in Midtown Manhattan, the only still-active construction is related to the WTC redevelopment, and that was only made possible on account of insurance proceeds and an insane amount of state and municipal leasing of space within those symbolic buildings.

Detroit is by far the worst out of any city, but at least the decline there was steady and predictable. Real estate prices are crazy low, but should be more stable going forward. NYC's toughest days are ahead of it. And as for Houston, we may be hanging on...barely...but aside from that vacancy is increasing and that effective rents are coming down, aside from that commercial foreclosures have begun to become problematic, aside from that debt financing remains elusive, we (in particular) are fraught with political risk. Energy and environmental policy could still whoop our ass even if the rest of the economy begins to recover in earnest.

City, Submarket - Direct Vacancy - Aggregate Vacancy - Class A Asking Rent

Houston, CBD - 10.7% - 11.9% - $35.75

Dallas, CBD - 24.9% - 26.4% - $21.95

Ft. Worth, CBD - 8.7% - 9.1% - $27.98

San Antonio, CBD - 11.3% - 18.3% - $21.69

Atlanta, CBD - 19.2% - 22.2% - $21.13

Miami, CBD - 12.4% - 14.8% - $43.16

Chicago, CBD - 14.2% - 16.7% - $38.62

Detroit, CBD - 29.3% - 29.6% - $23.37

Washington DC - 11.3% - 13.1% - $54.69

Los Angeles, CBD - 12.9% - 14.1% - $38.52

San Francisco, Financial District - 12.2% - 14.0% = $32.90

Seattle, CBD - 17.6% - 18.9% - $32.90

New York, Manhattan - 7.0% - 9.4% - $65.47

[TheNiche]

Maybe it just seems that way, but when will it be Houston's turn to develop like its no tomorrow like all the other cities did in the past few years and Houston sat pretty much dormant? It was just about to happen right before the bust. Just Houston's luck!

We already had our turn. Be thankful that the investment bankers practiced more restraint with this commodity price bubble than they had in the past. I don't think that there were any significant buildings started downtown between about 1984 and the mid or late 90's, and that's not something we should be gunning to repeat.