NASA/Clear Lake Makes Seventh Positive Showing

Davidson says it's particularly tight in the class A space race. And, he predicts to GlobeSt.com, that class B space in the next few quarters will be equally as tight. Class B, for now, posted 57,995 sf of negative absorption. But, Davidson says, "the weighted average rental rate for class B projects increased $1 per sf from the prior quarter. The only plausible explanation for the rate increase in this sector is that class B landlords were able to take advantage of the strength of the class A sector and overall market."

Davidson says "class A office opportunities are non-existent." The inevitable is that tenants seeking space will be forced to turn to class B office buildings. Davidson's forecast, of course, hinges on the "solid leasing activity which is anticipated with an improving economy."

The submarket's inventory contains 87 buildings and about 5.8 million sf of net rentable area. Unlike other Houston submarkets, NASA/Clear Lake is tied to the national space program at Johnson Space Center. And unlike most other submarkets, it rang up in the black for the second quarter.

The submarket's space connection is a mixed blessing. Admittedly, it is not dependent on the larger Houston economy, but it is prey to political whims because it depends so heavily on the federal budget. Davidson says every three or four years, local businessmen and politicians trek to Washington, DC to help ensure the commitment of federal dollars to the area. In a previous GlobeSt.com article, Davidson told about a scare six months ago when critical funding was up in the air for Johnson Space Center. That threat is long gone and Boeing's expansion is clear proof that federal contracts are alive and well in the market.

Davidson says the market's flightiness makes development of new product extremely difficult. Buildings with NASA contractors as anchor tenants have problems getting financing. Therefore, he does not believe additional buildings will be added to existing six class A inventory, with a modest 961,655 sf of office space. With that being the case, the outlook is rosy for the 38 class B office buildings and their combined 3.1 million sf.