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Namesake tenant departing One Shell Plaza

screen-shot-2016-09-21-at-07-24-51The move will affect 3,400 employees when it takes place early next year as part of “an effort to meet the ever changing market conditions and optimize resources for future opportunities,” Shell said in a statement Tuesday. Employees will move to the company’s Woodcreek facility and Shell Technology Center on the west side of town.

Those who work for Shell’s downtown trading operations will stay put, although the company said it eventually plans to have all of its Houston-based staff in company-owned facilities on the west side.

Shell’s decision to relocate the bulk of its downtown workers from its 50-story skyscraper is further indication of how stubbornly low oil prices are fraying the commercial real estate market as energy companies shed tens of thousands of jobs.

Across Houston, energy companies are selling buildings or looking for tenants to take over leases for space they no longer need. Shell’s Netherlands-based parent company, for example, has estimated it will lay off 12,500 worldwide by year’s end.

Largely as a result of these cutbacks, nearly 12 million square feet of sublease space is available, double Houston’s 10-year historical average, according to commercial real estate firm JLL. Energy tenants are responsible for the vast majority of that inventory, much of which is on the west side of Houston and downtown.

Alfie Meyerson, a real estate attorney with Jackson Walker said the sublease market is starting to resemble an “all-you-can-eat buffet” with an abundance of bargains.

A Shell spokeswoman said the company does not comment on specifics of its square footage or “exit strategy.” According to Washington, D.C.-based research firm CoStar Group, the company occupies a little more than 800,000 square feet of space in One Shell at 910 Louisiana.

Earlier this year, Shell put 350,000 square feet of space in One Shell on the sublease market. It is also subleasing space in BG Group Place at 811 Main.

Shell declined to disclose the term it has left on its lease. It said name of the building “would be up to the owner.”

Shell’s move follows a pattern of real estate consolidation among energy firms, though it’s not always been at the cost of downtown space, said Bob Eury, president of downtown business group Central Houston and executive director of the Downtown Management District.

While Exxon left downtown and Shell will soon, Chevron, Eury noted, has consolidated workers into its downtown towers.

As for any lasting negative impact on the downtown market, the loss of Shell is simply part of real estate’s – and energy’s – cyclical nature, said Jon Silberman, managing partner of commercial realty firm NAI Partners.

Though downtown remains home to many large energy companies, Silberman wonders how the area’s tenant base may shift going forward.

“They’re not coming back. Others will come to fill the gaps. You kind of wonder what’s going to fill all the space. What industry? Eventually the energy industry will come back,” he said. “Will it come back as strong? Who knows.”

Shell’s earliest beginnings in Houston came in the late 1960s when the company decided to consolidate many its U.S. offices, including its New York headquarters, downtown.

In 1971, the Hines real estate firm delivered Shell its flagship Houston property, One Shell Plaza, once the tallest building in Texas.

The travertine-clad tower holds 1.6 million square feet of space and was one of Gerald Hines’ first high-rise office towers and it remains one of his most notable.

Hines, which manages the property but no longer owns it, declined to comment on Shell’s departure. The building is owned by an entity affiliated with the family of late billionaire Dan Duncan, founder of pipeline company Enterprise Products Partners. The company did not comment Tuesday.

Aside from Shell, the building’s other tenants include the Baker Botts law firm and the Houston Club, a private business and dining club.

Hines also developed the 28-story Two Shell Plaza, which Shell vacated a few years ago.

After Shell’s move to downtown in the early 1970s, others followed.

Pennzoil moved its headquarters there from Pennsylvania in 1975. Then banks began moving into new downtown skyscrapers.

“One Shell Plaza really was a major turning point for downtown,” said Bob Eury, “If you look at the number of buildings that followed in the decade after 1971, there were an amazing number of office towers built during that period.”

Shell has its main U.S. offices in Houston and, in Tuesday’s statement, noted its significant ties to Houston.

“Shell values our position and presence in the Houston area – for our ongoing business, offshore and onshore training needs, and long-time relationships in the community. Houston also remains critical to our core business; it’s where we have much of our expertise, including engineering and operations support, as well two technology/research centers.”

Its downtown employees work in trading and supply, downstream and other functions that support all lines of business, the company said.

Across the Houston area, Shell has about 12,000 employees, including Motiva employees.

Nancy Sarnoff

Real Estate Reporter, Houston Chronicle

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