Houston Office Market 2020 Outlook: Q&A with Chip Colvill
Chip Colvill
HOUSTON – (Realty News Report) – Houston faces an abundance of office space, with more than 50 million square feet currently vacant. Most analysts place the overall office vacancy rate above 21 percent, while the Energy Corridor exceeds 30 percent. Downtown also shows elevated vacancy. How are building owners responding to keep their properties relevant and attractive, and what might the market look like as 2020 begins? Realty News Report spoke with industry veteran Chip Colvill, president and CEO of Colvill Office Properties, to get his perspective. Colvill oversees leasing and marketing for a 17.8-million-square-foot portfolio of Class A office properties in Houston and has completed more than 20 million square feet of lease transactions over the course of his career. His experience includes prominent Houston office projects such as 609 Main, 600 Travis, 1100 Louisiana, 910 Louisiana, 811 Louisiana, 1001 Fannin, CityCentre, 5 Post Oak, and the Galleria Office Towers.
Realty News Report: The phrase “flight to quality” has long described tenant preference for higher-quality office space. Given Houston’s large inventory of aging buildings and the competition for talent, does this trend carry more weight now?
Chip Colvill: Even with more than 20 percent vacancy in the Class A market, Houston’s unemployment sits near 4 percent, indicating a tight labor market. Companies that see their workforce as a strategic asset are relocating to newer developments to improve employee satisfaction, which helps them attract and retain talent. New buildings offer higher-quality environments, enhanced amenities, more efficient floor plates, improved elevator systems, and better parking — features that make these developments highly sought after.
Realty News Report: New downtown developments such as 609 Main, the Bank of America Tower, and the under-construction Texas Tower have drawn strong tenant interest. What explains that pull?
Chip Colvill: Modern design elements like floor-to-ceiling glass, adaptable and efficient floor plates that support current workplace layouts, and advanced systems such as underfloor air distribution (used at 609 Main and Texas Tower) are major draws. Our firm helped lease 609 Main, and Bank of America Tower is nearing full lease up, leaving Texas Tower as the primary new CBD development expected to deliver in late 2021. Hines has placed a strong emphasis on tenant experience at Texas Tower, including an exceptional lobby and robust street-level amenities. Having applied lessons learned from projects like 811 Main and 609 Main, Hines has designed Texas Tower to be an outstanding building, and leasing activity there has been strong.
Realty News Report: Are these new buildings commanding significantly higher rents?
Chip Colvill: New developments continue to achieve some of the highest rents in Houston’s history, although Houston’s market rates remain lower than many other major U.S. cities. National and international tenants recognize the value proposition of modern office product, and rising construction costs are contributing to upward pressure on rents. As supply and demand move toward stabilization, this trend should support rent growth across the market.
Realty News Report: Houston has many office buildings from the 1980s, and downtown has seen substantial renovation and redevelopment investment. Can you describe that activity?
Chip Colvill: Significant capital has been poured into updating 1980s-era buildings to keep them competitive. Many are iconic assets with strong locations, and renovations help preserve their appeal. That said, much of the vacant inventory sits in lower-tier Class A buildings that face greater challenges attracting tenants even after upgrades. In some cases, owners have continued to invest in properties that are functionally obsolete in the current market, and those spaces remain harder to lease despite renovation efforts.
Realty News Report: What are the most important steps owners must take to remain competitive in this flight-to-quality environment?
Chip Colvill: Owners must focus on tenant experience. Amenities — such as conference centers, food service, and fitness facilities — are critical and often check the boxes tenants expect when touring properties. Equally important is presenting vacant space in ways that help prospective tenants envision themselves there. That can mean white-boxing suites, offering hypothetical tenant layouts, using 3-D visualizations and promotional videos, and creating spec suites. For our firm this has meant intensifying marketing efforts and finding new ways to differentiate properties to attract tenant interest. It has been a challenge, but also an engaging one.
Realty News Report: Some redevelopment budgets have been substantial. Reports suggest $40 million was spent renovating 811 Louisiana, a building that may have cost less to build originally. Does that level of investment make sense?
Chip Colvill: I can’t confirm the $40 million figure, but 811 Louisiana is a well-located, efficient building with solid parking and tunnel retail, which reduces the investment risk for renovations. Ownership also developed spec suites that have seen strong demand. Our leasing team consistently sees new tenant activity there, so the renovation appears to have been a prudent investment. The building remains one of Gerald Hines’ notable achievements as part of the One and Two Shell Plaza development.
Realty News Report: In the 1980s, Louisiana Street became a prime address for skyscrapers. What drove its early prominence?
Chip Colvill: Access was a major factor: Louisiana connects directly to I-45 to the north and Highway 59 to the south, and its western position in the CBD ensured visibility on the skyline. Today, buildings along Louisiana still attract high demand, but tenant preference has broadened to other areas, including the northern district near Market Square and around Discovery Green. Street-level amenities have become increasingly important to today’s office occupants.
Realty News Report: Midway plans CityCentre 6 on the west side. With the office market still recovering, will leasing be difficult, or does this represent another chapter in the flight-to-quality trend?
Chip Colvill: CityCentre continues to attract meaningful prospective tenant interest. Its mix of amenities, retail, and dining, combined with strong highway access at I-10 and Beltway 8, makes it one of Houston’s most desirable projects. Despite a challenging market, CityCentre 6 is expected to move forward because tenants continue to seek this type of amenity-rich, mixed-use environment.
Realty News Report: Marathon Oil is building a spec project near CityCentre, and other developments are on the radar. Do you expect additional new office construction in 2020?
Chip Colvill: I do anticipate further new development activity in areas such as the Galleria, along Allen Parkway, in Midtown, and along I-10. Tenants are exploring a wider range of neighborhoods to be closer to where employees prefer to live and work. It’s also possible another downtown project could be initiated in the future, given sustained tenant interest in moving downtown alongside ongoing multifamily, restaurant, and hotel growth that enhances the area’s appeal.
Realty News Report: Sublease inventory has been working its way down and leasing activity appears to be improving. What do you expect for the Houston office market in the year ahead?
Chip Colvill: Historically, sublease space often ranges from 2 to 3 percent of the market. We saw a record surge in sublease availability starting in 2015, but it has been absorbing and now represents roughly 4 percent of the Class A market. That reduction means sublease space is less of a drag on overall market performance. We’re optimistic that 2020 will show stronger demand: several large deals emerged in the fourth quarter, and blue-chip technology companies have been looking for blocks of space here. Other growth areas include LNG (liquefied natural gas) firms, many of which are early in their expansion and expected to secure space in the CBD. We are tracking about 300,000 square feet of potential LNG demand targeted to the CBD for 2020.
Correction: The Texas Tower, currently under construction in downtown Houston, is scheduled for completion in late 2021. A previous version of this article stated a different delivery date. Realty News Report regrets the error.
