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BG Group to leave its namesake tower downtown

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By Nancy SarnoffMay 10, 2016

About five years after signing on to be the lead tenant in a new downtown office tower, BG Group will be leaving its namesake building.

The British gas producer, recently acquired by Royal Dutch Shell, will move employees out of the building at 811 Main by year’s end, Shell spokeswoman Natalie Mazey said Tuesday.

Staff will be relocated into existing Shell space downtown and on the west side. Most of Shell’s downtown offices are in One Shell Plaza and 1000 Main.

The departure of BG from 811 Main comes as the latest in a series of hits to the city’s office market amid the oil bust.

Energy companies saddled with debt are slashing budgets and laying off workers as they seek to stay afloat with oil selling in the $40s.

The amount of sublease space across the Houston area has grown to 9.3 million square feet, three times its historical average, according to NAI Partners, a commercial real estate firm. The weakest markets are on the north and west sides of town.

A recovery isn’t expected any time soon.

Mergers and acquisitions mean more space is likely to hit the market. The number of oil-price-related bankruptcy filings are also on the rise.

Downtown tenants Energy XXI and Goodrich Petroleum Corp. both recently filed for Chapter 11 bankruptcy protection.

Energy XXI is the second-largest tenant in downtown’s One City Centre after Waste Management. It occupies 165,000 square feet in the 602,000-square-foot building, according to Trepp, a commercial real estate research firm in New York.

In 2011, BG Group moved downtown from a building in the Galleria area after signing a lease for 164,000 square feet in the 46-story 811 Main. It had the option to take additional space. The company now leases about 352,000 square feet, though it subleases a portion of that.

Hines, which developed the building and now manages it, declined to comment. Building owner Invesco did not return calls Tuesday.

Despite concerns, Jon Lee, a senior vice president with commercial real estate firm CBRE, said he’s still seeing “pretty decent activity” in office leasing.

Companies with leases expiring in the next few years are evaluating their space needs.

“Frankly, it’s a good time to be in the market,” Lee said, noting lower rental rates increased concessions.

He said a vacancy in 811 Main will have strong demand.

“There’s a flight to quality in downturns,” Lee said.

Still, the oil bust’s full effect on the commercial real estate market won’t be realized for a few years, a recent Morningstar research report suggests.

Though Lee is not seeing “doom and gloom,” he recognizes the future unknowns.

“I think everyone’s interested to see what comes out of the chapter 11 restructurings. And what does the M&A space look like?” he said. “There’s a lot of unknowns.”

SOURCE

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