SEPTEMBER 19, 2017

Brookfield to buy Houston complex for $875m

by Andrea Waitrovich

A Brookfield Asset Management fund has agreed to pay approximately $875 million for Houston Center, located on the east side of downtown, according to media outlets.

The seller is J.P. Morgan Asset Management, which acquired the property in 2011.

The office and retail complex has approximately 4.2 million square feet across four buildings.

Other recent deals in the Houston area include Canada Pension Plan Investment Board’s $1.2 billion acquisition of Greenway Plaza and Lincoln Property Co.’s purchase of Greenspoint Place.

Houston’s office investment sales activity increased substantially over the year, increasing by 439 percent since second quarter 2016, according to Colliers International. With most of the investor community believing the downturn in the energy industry has reached the bottom and has begun to rebound, they now see Houston as offering limited downside and the potential for healthy returns. The average sales price increased marginally over the quarter, but is still well below the historical average.

Since the fourth quarter of 2014, leasing activity in Houston has lagged behind its 10-year quarterly average of 3.8 million square feet in nine of the past 10

quarters, according to JLL. Unfortunately, the second quarter of 2017 was among the nine underperformers. As a result of the slowdown in tenant demand, total vacancy has risen in each of the past 10 quarters, rising from a healthy 13.5 percent in the fourth quarter of 2014 to a decade-high 22.4 percent. Additionally, the market added more than 12.8 million square feet of new office product and a nearly identical amount of sublease space over this same time. This imbalance on both the demand and supply sides of the equation has placed a great deal of pressure on the market to say the least.

While a great deal of work remains to be done on the demand side, the market has taken several important steps toward stabilizing the supply side. Most notably, the market’s available sublease inventory contracted for the third consecutive quarter to 11.1 million square feet during the second quarter, which represents a decrease of more than 1.1 million square feet from its peak. Further, at 2.3 million square feet, the construction pipeline is now at its lowest level since the first quarter of 2012 and well below its 10-year quarterly average of 4.7 million square feet.

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