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HOUSTON-The Energy Corridor and the suburban office markets as a whole were the winners last quarter, Sanford W. Criner Jr., principal with Trione & Gordon ONCOR International in Houston, says in a media briefing of the firm’s third quarter research. The Energy Corridor absorbed 314,020 sf, he says, the highest in the city.

Trailing close behind the Energy Corridor is the Southwest Freeway submarket absorbing 128,541 sf; Katy Freeway submarket, 74,699 sf; and Greenway Plaza, 74,499 sf. Much of the action in leasing this quarter has been in suburban class A product, says Criner.

Key leases for the Energy Corridor were BP Amoco’s 65,391-sf spot at Three Westlake Park; Aker Group’s 48,954 sf at Woodbranch Plaza II; and the CoFlexip and Akor lease of 47,486 sf at Woodbranch Plaza I.

Energy Corridor rent hiked 6 cents per sf for class A space, taking the bottom line to $24.21 per sf and making it the highest rental rate of the suburban markets. The submarket is bearing an 8.3% vacancy, which is the lowest since fourth quarter 1998. Criner credits the strength of energy and engineering firms with the submarket’s vibrancy in the last quarter.

The CBD still needs to take heed of market conditions, says Criner, who issued another warning about its negative absorption. Rental rates have jumped 15% in the past two years. It can’t continue, Criner says, particularly as more companies opt for suburban product. Third quarter rent averages $27.21 per sf for class A, while the CBD is reflecting an average of $17.71 per sf for all three of its classes. Meanwhile, the CBD is bearing the burden of an 8.9% vacancy rate.

The coming years will bring 2.4 million sf to market in the CBD as its giant tenants head to new facilities. The relocations could further weaken the downtown market. “Citywide we’ve avoided overbuilding,” he says, “but a cyclical downturn in demand is an increasingly likely prospect–and downtown could be vulnerable.

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