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HOUSTON-Sheehy, Serpe & Ware PC has become the first office tenant at the just-completed 200,000-square-foot Houston Pavilions Tower. The law firm signed a long-term lease for 28,009 square feet, giving it the top one and a half floors of the nine-story CBD building.

The Pavilions Tower is part of the 560,000-square-foot, $190 million Houston Pavilions, a mixed-use development bordered by Dallas, Polk, Main and Caroline streets. Though the retail and restaurant component has been open since last summer, senior vice president Eric Anderson with Transwestern’s Houston office says the office tower was completed just two weeks ago.

Anderson, who represented project developer Houston Pavilions LP, says Sheehy, Serpe will relocate its current offices at 909 Fannin St. to the new space a few blocks down the street during Q4 2009. Though he declined to discuss specifics, he did say the quoted lease rate at Pavilions Tower is $23.50 per square foot, with a $35 per square foot tenant improvement allowance.

“This had a healthy improvement package, as we’re building out the space from slab,” comments Anderson, who partnered with Transwestern vice president Greg Tilton on behalf of the project owner. Chris Oliver and Trey Stake with Cushman & Wakefield of Texas Inc. represented Sheehy, Serpe & Ware.

Though Pavilions Tower comes on line during an economic downturn, the overall CBD doesn’t seem to be impacted so far. According to Transwestern’s Q4 Houston Outlook, the CBD’s year-end direct vacancy stood at 8.9% out of 43 million square feet, with 342,000 square feet absorbed during the year. The vacancy rate during the same quarter last year was 9.2%.

In discussing Houston Pavilions with GlobeSt.com in 2007, Transwestern’s Tilton said tighter office vacancies in the CBD, combined with the fact that any office product coming on line was still a couple of years away, would help spur inquiries from potential tenants. A year and a half later, even in the midst of an economic slowdown, Anderson says his colleague’s statement still holds up, as not a whole lot of product is in the pipeline.

“We have three new buildings going up in the CBD including Pavilions,” he comments, adding that Hines’ one-million-square-foot MainPlaceat 811 Main St. and Trammell Crow Co.’s 871,000-square-foot Discovery Tower will come online in 2010.Sources say, however, that New York City-based Hess Corp. is close to finalizing a long-term deal with Trammell Crow to take the entire Discovery Tower at 1501 McKinney St. Furthermore, last May KPMG signed a lease for 108,904 square feet at MainPlace.

As a result, Anderson says, the submarket won’t exactly be overwhelmed with new inventory in the near future. “We’re in an economic downturn right now, though we can’t point to any changes in the downtown market,” Anderson tells GlobeSt.com. “If oil and gas prices do increase, we believe there’s a possibility that the impact on downtown won’t be negative, but flat.”

And with Pavilions Tower completed and restaurants and shops in the remaining 300,000-square-foot-plus project open for business, Anderson says potential users have a definite interest in the project, though no LOIs as yet.

“When Sheey’s partners toured the place, and saw all of the restaurants that were open and about to open, they felt that would be well-received by its employees and clients,” Anderson adds. “It was ultimately one of the primary motivating factors why they chose the Pavilions.”

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