Earlier this year, staff presented a Market Update to the Sugar Land Development Corporation, where we demonstrated the challenge Sugar Land has competing with other office markets in the region. Our office market is currently at a 17.4% vacancy rate with a market rent/sf of $29.30; this is a slight increase from 3 months ago. Although competitors like the Energy Corridor and Westchase District may be reporting similar vacancy and rents, they are offering significant concessions for their office space to where tenants are paying much less on rent and receive significant tenant improvements on Class A and newer buildings.
In response to the office market threats, to remain competitive, and most importantly, to retain office headquarters, we have outlined a flexible direct incentive policy that will provide $6,000 per job to any company that retains their regional or national office headquarters in Sugar Land. To qualify for the incentive, an office headquarter would need to:
- Retain and/or create a minimum of 50 primary jobs
- Have an existing regional or national headquarter office lease within the City Limits
- Renew or enter into a new lease for five to ten years within the City Limits
- Expense $1M in capital investment for tenant improvements
Other factors that will be considered are:
- The amount of local payroll the project will create or retain;
- The amount of local sales taxes the project will generate or retain;
- The Company’s use of local higher education resources;
- The Company’s corporate structure;
- Whether the Company is in a growth industry or targeted industry;
- The risk of the project’s success or failure; and
- The Company’s credit rating
This new direct incentive policy will allow us to be aggressive and competitive in our approach to retain our existing national and regional office headquarters. It is important to note, however, that the estimated total direct and indirect/induced benefits for any project receiving an incentive from SLDC must exceed the total direct incentives offered; these benefits come primarily from sales taxes generated by the company and their employees and visitors, hotel occupancy taxes generated by the company’s visitors, as well as other direct and indirect revenues such as permit fees and franchise fees for utilities. Further, the incentives are performance-based, contain claw back provisions and are paid out in accordance with companies successfully fulfilling all their obligations on an annual basis.
Staff recommends approval of Resolution No. SLDC-22-03, adopting a policy on granting an economic development direct incentive for the retention of Sugar Land regional and national office headquarter locations.