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HOUSTON-Office users who have been waiting for themarket to bottom out before making any space decisionsmay have missed their chance for a bargain. “In 2005, the Houston office market will finally pullout of the doldrums,” says Charles Scoville, a SVP with Grubb & Ellis Co. “Next yearshould be positive in terms of absorption and rentalrate increases, especially in the better buildings.”

Scoville tells GlobeSt.com that he expects effectiverental rates to increase as much as 5% in 2005 whileconcession packages continue to shrink. Grubb & Ellis’ fourth quarter Office Market Trendsreport supports Scoville’s predictions. The Bayou Cityposted three consecutive quarters of positive officeabsorption and will end 2004 in the black rather thanin the red, as it has for the past couple of years.During the fourth quarter, nearly 500,000 sf of officespace was absorbed, bringing yearly absorption to345,196 sf.

The strong absorption pushed vacancy rates down.Overall vacancy declined for the first time in morethan three years during the fourth quarter and iscurrently sitting at 19%, compared to 19.4% at the endof the third quarter, according to Grubb & Ellis. TheUptown/Galleria, Westchase, CBD and the Woodlandssubmarkets each surpassed 100,000 sf in absorptionthis year, accounting for 1.1 million sf ofabsorption.

“We’re starting to see the strength of the oil and gasmarket translate into demand with many oil and gasfirms now expanding and taking more space,” Scovillesays. Currently, the average rental rate for Class A spaceis $20.85 per sf, with the Woodlands and Fort BendCounty garnering the highest rates at $24.11 per sfand $23.18 per sf, respectively. Class B rates at theend of this year came in at $16.33 per sf, accordingto Grubb & Ellis.

Development has remained conservative, which hashelped the overall market. During 2004, only 299,673sf of new office space was completed–the lowestvolume since 2001, according to Grubb & Ellis.Currently, only 151,000 sf of office space in underdevelopment.

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