"The last time we saw this kind of construction was back in 1998and '99," Ariel Guerrero, vice president for Grubb & Ellis Co.in Houston, tells GlobeSt.com. "And the new ones are truly class Aand truly trophy properties." Year to date, 1.9 million sf hasdelivered, with 2.3 million sf to come on line before the yearends. The pipeline's balance will hit between 2009 and 2011. In1999, developers brought out 4.9 million sf, according toGuerrero's records.

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CB Richard Ellis' research team, also unleashing second-quarterstats, reports 44 office buildings are under construction. Of thenine million sf that it tracked, five million sf will deliver thisyear. "It only represents a 2.7% increase to the total market sizeand seems to be in line with anticipated demand in the energyindustry," the CBRE team concludes.

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Guerrero says the metro's vacancy rate in 1999 is similar totoday's level, which is 87.52% in all classes and 90.35% in class Aat the secondquarter's close. And now as before, the construction leaderis the Katy Freeway/Energy Corridor, which accounts for threemillion of the 2008-09 pipeline. In 1999, the submarket generated2.1 million sf of the 4.5 million sf of deliveries. "We're kind ofseeing the same thing," he says. "It seems history does repeatitself."

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Guerrero says the new research shows Katy Freeway/EnergyCorridor, the Downtown and Northwest Freeway submarkets represent6.4 million sf of the pipeline. He estimates 90% of the newbuildings are class A and class AA. "There are quite a few notableprojects under way," he says.

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CBRE's report breaks down the Katy Freeway/Energy Corridor. Itsteam has found there are 2.6 million sf under construction in theEnergy Corridor and 1.38 million sf in the next-door neighbor'sterritory. Another one million sf is coming up in the FM 1960/Texas249 corridor.

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Like construction dockets everywhere, some projects could bestalled due to the lending environment or a developer's hesitancyto start, but certainly not due to the dynamics of Houston. Thecity is outperforming the nation in job count, population growthand fundamental economic indicators.

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"Many have broken ground, but there are a lot of planned andproposed projects," Guerrero points out. "The likelihood is many ofthose may not start construction." Among the question marks isCrescent Real Estate Equities, now owned by New York City-basedMorgan Stanley, which has had a CBD high rise on its drawing boardfor a couple years. The brokerage circle also is waiting to hearwhen Los Angeles-based Thomas Properties Group Inc. is going tostart the 1.8-million-sf expansion at BMC Software Inc.'s1.4-million-sf campus along Beltway 8.

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Guerrero says Houston isn't overbuilt despite the size of thepipeline and deliveries to date. "Thirty percent of the newconstruction is preleased," he says, "and many won't deliver until2009 so we still have time for preleasing." Vacancy could "creepup" a bit as a result, he adds, "but there doesn't appear to be anyred flags."

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With Houston racing ahead of the nation, investors near and farare using the city as a launch pad for profit, some quicker to sellthan others. "Houston is on the map from an investment standpoint,"says Keith Lloyd, Grubb & Ellis' senior vice president. "Therehave been phenomenal returns on investments. People who have comein and come out in 12 to 18 months have done very well."

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The CBRE team supports Lloyd's observation, adding "insatiableinvestor appetite has fueled new record-breaking pricing." Thegroundswell has resulted in a run up in valuations have "allowedinvestors to capitalize on short-term holds," the team says."Institutional investors and offshore investors that have avoidedHouston for the last 10 to 20 years are now actively pursuingHouston office properties for their portfolios."

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