Diana Lansing, Director
GRS | Title
(214) 296-2166
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Bad things can happen when you put all of you eggs in one basket. That’s been part of the problem the Houston office market has faced over the years – reliance on the energy industry to dictate commercial real estate fundamentals.
Not that Houston, the country’s fourth-largest city, doesn’t have other important industries with significant operations, such as healthcare, but the overall office market there goes hand-in-hand with the performance of energy-related businesses.
As recently as the fourth quarter of 2012, Houston was one of the hottest office markets in the country. Vacancy rates during that period were at 13.8 percent and on the decrease, while rental rates rose and new construction was abundant, according to a Colliers International report.
Fast forward to the present, and Houston’s office market couldn’t be more different than it was five years ago. Lower energy costs have rattled the local economy, and its unemployment rate, at 5.9 percent, is one percent higher than the U.S. average.
Houston office vacancy rates stood at 18.8 percent during this year’s first quarter, says Colliers, an increase from 15.3 percent from the same year-ago period. The CBD’s rate was at 19.1 percent, and clocked in at 18.3 percent in the suburbs.
There was 0.7 million square feet of net absorption during the quarter. The 1.8 million square feet under construction is reportedly 43 pre-leased.
JLL sees some hope for a return to stability for the Houston office market in its Q1 report. The firm points out that total sublease space decreased for the second straight quarter. It now sits at 11.3 million square feet, but that was after a 900,000-square-foot drop since 2016’s fourth quarter. Construction is also at its lowest point since 2012, which could potentially tighten up space if there is more tenant demand coming online.
JLL doesn’t see any marked improvement in Houston office coming soon, but researchers say that they expect slides in fundamentals to be less pronounced. Other reports forecast that the market should start improving some time in 2020.
And if this shows any indication of hope for the future, TH Real Estate and Silverpeak Real Estate Partners, along with Canada Pension Plan Investment Board recently closed on a 49-percent stake of Houston’s Greenway Plaza and Phoenix Tower, giving the complex and estimated value of just under $1.1 billion.