HOUSTON-The soft Houston office markets won’t be able to sustain additional rent increases, says Sanford Criner, principal with Trione and Gordon ONCOR International in Houston.

The assessment was leveled at Criner’s annual “state of the market” address designed to close out the year. There is 3.3 million sf under construction in the CBD and the promise of space blocks coming on line due to Enron’s meltdown. “Space will have to be re-priced to bring people in from the suburbs. I challenge anyone to find internal demand for that space,” he tells GlobeSt.com.

Criner is a strong believer in the downtown’s vibrancy. Ultimately, he says the market will absorb the office space coming on line. The Catch-22 is rents will have to be decreased for that to happen, he says. In the past year, CBD class A rent has spiked 8% and 23% in the last three years, according to Criner. The average class A rent has risen 84% in the past five years.

Conversely, suburban class A space has not increased in price in the last year. And, it’s up just 6% for the past three years and 52% in the last five.

In today’s market, rental prices, particularly in the CBD, are falling and will continue to fall, Criner says. He predicts it could drop 15% to 20%. Rent will not behave in an orderly fashion, he says. Full buildings may be slow to cut rates and new buildings may hang on and pray. Criner prefaces his predictions with the traditional caveat: “No one has a crystal ball about these things.”

Current CBD class A rates are $27.53 per sf while suburban class A space runs $22.37 per sf. CBD class B rates are $19.64 per sf and suburban class B space, $17.14 per sf.The top demand submarket are the Energy Corridor, Westchase and the Woodlands. Out of favor in today’s market are the CBD, Greenway Plaza and West Loop.

Criner believes the addition of lofts, restaurants, bars, condos and other such projects will make downtown more desirable and ultimately provide a stabilizing influence for the submarket. In his annual report, Criner says “rents are still flat, but high-growth markets will strengthen as the construction cycle ends in 2002.” Moderately strong energy prices are the drivers for the city’s economy.

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