HOUSTON – (By Michelle Leigh Smith for Realty News Report) – The Houston office market remains sluggish, showing little movement compared with previous quarters.
According to NAI Partners, total office vacancy in Houston was 20.1 percent in the third quarter, a slight rise from 20.0 percent in the second quarter.
Although local job growth has been solid, it hasn’t been enough to absorb the large supply of empty office space across the city, NAI Partners reported at its third-quarter press breakfast.
What is changing, however, are the types of office buildings tenants prefer and the amenities those properties offer.
“Newly delivered buildings feature more amenities than older, traditional office towers,” said Griff Bandy of NAI Partners, who represents many small and midsize local and regional tenants.
There is intense competition for talent nationwide, and companies located in high-quality buildings with robust workplace offerings have an edge.
“Firms with growth plans are taking a serious look at buildings that offer more amenities to support recruiting and employee retention,” Bandy said. “These companies are often willing to accept more efficient layouts and a lower square-foot-per-employee ratio in order to secure newer, amenity-rich offices. Popular amenities include multiple nearby food and beverage options, accessible collaborative spaces both inside tenant suites and throughout the building, fitness facilities with lockers and showers, and the ability to live, work, and play near the office.”
NAI Partners itself recently relocated. The firm moved from an older building with a basement deli at 1900 West Loop South to a modern space at 1360 Post Oak in Four Oaks Place, a contemporary building with several on-site restaurants within walking distance.
“As partners, we chose a space that better matched those priorities,” Bandy said. “Our headcount per square foot is more efficient now than two years ago, but we traded that density for improved amenities for our employees.”
One example of a modern, flexible workplace with broad appeal is The Cannon at 1334 Brittmoore Drive, which emphasizes open, collaborative space and amenities that attract workers of all ages.
In the Energy Corridor, vacancy is particularly high—about 30 percent—meaning roughly one in three square feet is currently available, Bandy noted.
David Bateman, Senior Vice President of Office Project Leasing, added that Houston remains an entrepreneurial city with many new concepts emerging. “We still live and breathe oil and gas, but we’re also seeing more ventures in technology and other sectors,” he said. “Average lease sizes have decreased as tenants seek richer experiences while reducing footprint so they can upgrade amenities.”
RETAIL
Jason Gaines, Senior Vice President of Retail Services, described retail conditions as subdued. “Existing retailers are under pressure nationwide,” Gaines said. “Online competition from Amazon has hit chains like Bed Bath & Beyond hard. There are bright spots in affluent areas such as Katy and League City, but rent fatigue is taking hold elsewhere. Some tenants need relief on cash flow, and some landlords are accommodating. Many national retailers aren’t doing enough to generate excitement—take JCPenney as an example; it’s unclear what their core offering is, and they’re not creating urgency.”
Gaines observed that in the wake of national retail uncertainty, several categories tend to replace traditional stores: furniture, fitness, experiential destinations (such as pop-up attractions), and deep-discount retailers often move into spaces vacated by mattress stores or bookstores.
INDUSTRIAL
Travis Land, who oversees NAI’s industrial services, reported about 18 million square feet of Class A industrial availability. He’s noticed a substantial increase in dock-high warehouse space—facilities with loading docks around four feet above grade. “Class A vacancy is about 11 percent,” Land said. “Second-generation manufacturing buildings have generally performed well.”
APPRAISAL
Gary Brown, who advises on appraisals and property taxes for NAI, emphasized that taxes weigh heavily on tenants’ decisions. “When HCAD adjusts building valuations and occupancy costs rise by 15 percent, that’s a measurable impact and those costs are passed through to tenants,” he said. Brown believes higher taxes have pushed some tenants to relocate from the Beltway 8 corridor to buildings built in the mid-1980s and 1990s.
Nov. 15, 2019 Realty News Report Copyright 2019
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