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Two Energy Firms Lease Office Space in Houston, Where Falling Oil Prices Pose Questions

James Heistand

James Heistand

HOUSTON — Parkway Properties has announced two Houston office leases to energy-related firms, reducing the potential for empty space in its Houston portfolio.

“These two leases help to quickly mitigate some upcoming known move-outs in our Houston portfolio with little to no downtime,” stated James R. Heistand, President and Chief Executive Officer of Parkway.

Nabors Industries, which owns more than 500 drilling rigs and also is one of the world’s largest oilfield service suppliers to the hydraulic fracturing industry, leased 98,000 square feet of Parkway office space in Houston’s Greenspoint area.

Also, Bristow Group, a provider of helicopter services to the offshore energy industry, leased 115,000 square feet in a Parkway building in Houston’s Westchase District.

Heistand continued: “Having recently signed a strategic long-term renewal with Nabors Industries, we were also able to accommodate their expansion needs while immediately backfilling a pending vacancy at One Commerce Green.  Additionally, the Bristow Group lease allows us to backfill space being vacated by Halliburton at CityWestPlace at significantly higher current market rents compared to current in-place rents for that space.  As a result of these leases, our Houston portfolio is currently approximately 94% leased, and we have mitigated some of our exposure to near-term expirations in Houston.”

The Houston office market has been under scrutiny because of a sharp drop in oil prices. West Texas Intermediate, which was at $107 a barrel in June, dipped below $60 a barrel in December. Economists says there will be layoffs in the energy sector as drilling activity tapers off next year.

Also, mergers and acquisitions are expected as some companies falter under in the era of lower oil prices, further reducing the demand for office space in Houston, which is known as the Energy Capital of the World.

“I am very pleased with recent leasing velocity in Houston, which remains a dynamic core market for Parkway,” stated M. Jayson Lipsey, Executive Vice President and Chief Operating Officer of Parkway. “Our local operating team has continued to drive value through accretive lease deals. Based on recent leasing activity, we have reduced lease expirations as a percent of the overall Houston portfolio to an average of approximately 9.5% per year over the next five years. Additionally, we have unlocked considerable NOI growth in the process, highlighted by the positive mark-to-market of approximately 66% on the recently executed Bristow lease at CityWestPlace. ”

Nabors Industries signed a 98,000 square foot expansion lease at One Commerce Green, located in the Greenspoint submarket of Houston, that expires on September 30, 2025. The Nabors expansion will immediately back-fill space that Southwestern Energy Company will vacate during the first quarter of 2015. Bristow Group Inc. signed a 115,000 square foot new lease at CityWestPlace, located in the Westchase submarket of Houston, that expires on January 31, 2025. The Bristow lease will back-fill known move-outs at CityWestPlace of approximately 39,000 square feet of 2014 expirations and approximately 76,000 square feet of 2017 expirations.

As of December 17, Parkway’s Houston portfolio has approximately 418,000 square feet of 2015 lease expirations, which represents 9.5% of its total Houston portfolio. Included in the 2015 Houston expirations is 101,000 square feet associated with the expiration of Southwestern Energy Company’s lease at One Commerce Green, which has been largely backfilled by the Nabors expansion. Excluding the Southwestern Energy Company lease expiration, Parkway’s Houston portfolio has approximately 317,000 square feet expiring in 2015, representing approximately 7.2% of its Houston portfolio.

Southwestern Energy is moving into a new office building, developed by Dean Patrinely, near the new Exxon Mobil campus on the north side of Houston. Exxon Mobil is also vacating a lot of office space around Houston to move to its 385-acre campus, which has more than 3 million square feet of new space in 20 buildings.

As of December 17, Parkway’s Houston portfolio has approximately 588,000 square feet of 2016 expirations, which represents 13.4% of its total Houston portfolio. Of the total 2016 Houston expirations, 306,000 square feet is space that BMC Software, Inc. will vacate at CityWestPlace in January 2016, with expiring rates that are considerably below current market rates for that property. Excluding the BMC Software contraction, Parkway’s Houston portfolio has approximately 282,000 square feet expiring in 2016, representing approximately 6.4% of its Houston portfolio.

Parkway estimates a positive mark-to-market potential of approximately 27% on its 2015 Houston expirations and 34% on its 2016 Houston expirations.

Houston rents have increased over 5 percent in the last year alone (for all classes of space) and space in Class A buildings has seen major increases in recent years. Some Class A buildings in downtown Houston are now getting $50 per square foot, the highest rents ever.

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