The U.S. arm of the world's largest oil company is helping to fuel Houston's office market after signing a deal to renew its downtown Houston headquarters in one of the region's largest leases of the past year.
Aramco Americas, the Texas-based subsidiary of oil conglomerate Saudi Aramco, has extended the deal for its nearly 174,000-square-foot corporate hub in the upgraded Two Allen Center high-rise at 1200 Smith St., landlord Brookfield confirmed.
The deal lands weeks after Motiva Enterprises, another Aramco subsidiary, renewed the agreement for its 221,000-square-foot headquarters in the adjacent One Allen Center tower. And in December, fellow energy giant Plains All American Pipeline recommitted to its nearly 260,000-square-foot space in Three Allen Center as part of a deal that extended the company's time in the 50-story tower for at least another decade.
These three deals are the largest office leases — including both new and renewal transactions — to be signed in Houston in the past year.
The latest Aramco renewal not only solidifies the energy company's standing as the 34-story tower's largest tenant, but also means Brookfield has collectively landed upward of 900,000 square feet of lease agreements over the past six months across the trio of towers that make up the 3.2 million-square-foot Allen Center campus.
The Aramco offshoot has been based in varying amounts of space at Two Allen Center since it relocated its headquarters to the 36-story tower in late 2017. It encompasses nearly a fifth of the roughly 986,200-square-foot building's footprint, which according to CoStar data is about 60% occupied.
Willing to recommit
The trio of renewals at the Allen Center complex has helped confirm that Brookfield's bet on a top-to-bottom renovation for the downtown Houston office towers is paying off even as the broader market slogs through its post-pandemic recovery.
The New York-based landlord invested nearly $150 million in renovations, tenant finish-outs and leasing commissions with a goal of positioning the Allen Center campus at the forefront of Houston's upscale office market. Since the capital improvement plan's 2021 completion, Brookfield has landed some of Houston's largest office deals — a feat considering that the campus continues to be particularly vulnerable to volatility in the energy sector given its high concentration of tenants such as Plains, Talos Energy, Freeport LNG, Beacon Offshore Energy and others in the sector.
Houston's vacancy rate in the downtown area where energy companies are clustered sits at more than 27%, according to CoStar data, higher than the overall market of about 20%.
After years of unprecedented downsizings and lease terminations, the national office market appears to be settling as the pipeline of tenants shopping around for office space begins to climb above its pre-pandemic average, according to a recent CBRE report, signaling that leasing volume should tick upward through the remainder of the year.
Renewals are expected to play a large role in that activity compared to historical averages, CBRE said, with a significant portion of tenants expected to renew their current leases in order to avoid costly relocations and the challenges associated with gauging potential landlords' financial health.
What's more, landlords are scrambling to retain their occupancy, meaning they're far more likely to negotiate favorable terms with tenants — especially larger ones — than risk troublesome move-outs.
Across the United States, renewal deals among large tenants including PwC, MetLife, Google, Bank of America and Blackstone account for about two-thirds of the roughly 45 office leases spanning 150,000 square feet or more that have been signed since the beginning of the year, according to CoStar data. Those renewal agreements collectively total about 4.8 million square feet, a figure estimated to rise as companies become increasingly confident in mapping out their future real estate investments.