HOUSTON – A new report from Avison Young shows that Houston has one of the highest office vacancy rates in the United States.
At mid-year 2017, Houston’s office vacancy rate stood at 16.8 percent, the second-highest nationally behind Fairfield County, Connecticut, which recorded 17.8 percent vacancy.
Atlanta ranked third with a 16 percent vacancy rate.
Avison Young tracked 64 office markets across North America and Europe, representing nearly 6 billion square feet. The report found vacancy rates fell in 40 of those markets, with roughly 52 million square feet absorbed on an annualized basis.
Houston’s vacancy climbed significantly over the previous year, rising from 14.1 percent at mid-2016 to 16.8 percent at mid-2017, the report noted.
Declines among energy firms, driven by lower oil prices, have produced a surplus of sublease space in Houston.
“While we are seeing small signs of improvement, substantial vacancy remains. With about 11 million square feet of sublease space on the market, this shadow inventory could exacerbate the situation as those leases unwind,” said Avison Young principal Rand Stephens, managing director of the firm’s Houston office.
“The Energy Corridor in west Houston and the Greenspoint submarkets have been hit the hardest. Office inventory in west Houston expanded dramatically between 2010 and 2014. Fortunately, much of that new construction was financed responsibly with significant investor equity and pre-leasing commitments from credit-worthy firms, which has given owners staying power. But it appears many energy companies leased space anticipating future growth,” Stephens added. “As a result, not only do these companies not need the planned expansion space, much of their existing space is now surplus to requirements.”
By contrast, Dallas—where vacancy remained above 14 percent—recorded 4.7 million square feet of absorption, the highest in the country, supported by corporate expansion and build-to-suit projects, according to Avison Young.
The report also examined broader long-term global trends affecting office markets.
“The office sector—and commercial real estate more broadly—is not immune to globalization and technological innovation,” said Mark E. Rose, Chair and CEO of Avison Young.
“Rapid change has prompted concerns that technology could make physical real estate less relevant. Yet historical patterns show technology tends to create as many jobs as it displaces. Companies like Amazon and WeWork frequently appear among the largest lease transactions tracked across Avison Young markets,” Rose said.
“Amazon’s digital success is generating demand for physical space—not only in retail, but in industrial and increasingly office sectors—creating a new source of office demand as e-commerce expands. Meanwhile, the rise of WeWork and other co-working providers shows that businesses still need physical workplaces, even as connectivity enables work from anywhere. Companies continue to seek flexible, collaborative spaces to support evolving workplace models.”
These observations were published in Avison Young’s Mid-Year 2017 North America and Europe Office Market Report.