HOUSTON – (Realty News Report) – Houston now has 51.1 million square feet of vacant office space, according to NAI Partners’ third-quarter market report.
The elevated vacancy level follows a downturn in the energy sector and related workforce layoffs. Out of roughly 236 million square feet of existing office space citywide, Houston’s vacancy rate stood at 21.6 percent at the end of the third quarter.
There are positive signs amid the oversupply. Over the past 12 months the metro added more than 80,000 jobs, sublease inventory has declined, and leasing activity has picked up, producing modest positive absorption — a reversal from recent quarters, NAI Partners noted.
“Focusing on office market fundamentals, Houston continues to experience high vacancy because leasing absorption remains weak,” said Alex Taghi, vice president at NAI Partners, in the commentary. “With vacancy still above 50 million square feet, a quarterly positive absorption of 58,000 square feet does little to move the needle. Although sublease availability has dropped sharply, much of that space has rolled back to landlords, who are now responsible for leasing it directly.”
Taghi also flagged the potential for further vacancy tied to merger and acquisition activity. He cited Occidental Petroleum’s acquisition of Anadarko and possible restructurings or layoffs at companies such as HP, McDermott and Weatherford as factors that could increase available space.
Currently, sixteen office buildings totaling about 2.5 million square feet are under construction. Newer properties are reporting strong leasing as tenants prefer higher-quality, amenity-rich buildings in a “flight to quality” trend.
“Owners of the newest Class A+ projects are delivering amenity-heavy services that mirror the hospitality offerings of high-end hotels to attract top tenants,” said Bill Brownfield of Alpha Office Escalations, a veteran of the Houston office market. “These well-capitalized projects have momentum and can offer live/work/play environments that command premium rents. By contrast, owners of older Class A and Class B buildings—the majority across Houston—face the risk of being treated as commodity space and end up competing mainly on price. They still must invest in repositioning to remain competitive.”
NAI Partners reported that the 51.1 million square feet of vacant office space is comprised of approximately 47.6 million square feet of direct vacancy and 3.5 million square feet of sublease space.
Oct. 31, 2019 Realty News Report Copyright 2019
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