Houston Office Market Set for Strong Rebound, Says Colliers
Patrick Duffy
HOUSTON – The Houston office market appears to have bottomed out and is beginning a slow recovery, according to Patrick Duffy, president of Colliers International Houston.
“We expect the office market to remain somewhat challenged and to crawl along the bottom for a while,” Duffy said. “Unless major energy firms start leasing three or four floors at a time, recovery will be gradual.”
Speaking to a large audience at Colliers’ Houston Trends 2018 event at the Houston Country Club, Duffy said the overall outlook for commercial real estate in Houston is positive.
“We expect this to be a pretty good year,” he added.
Colliers reported a citywide office vacancy rate of 19.1 percent in the fourth quarter, up from 17.5 percent at the end of 2016. Rents slipped modestly as well: average Class A rent fell to $34.97 per square foot in the fourth quarter, down from $35.35 a year earlier. Duffy noted, however, that rents have stabilized and appear to have hit a bottom.
He pointed to encouraging signs across Houston’s economy that should support real estate markets. Job growth has improved and may strengthen further as oil prices have risen. West Texas Intermediate crude has recently settled in the mid-$60s per barrel, which should spur hiring in Houston’s energy sector. Forecasters were calling for more than 40,000 new jobs in 2018.
“The jobs picture looks good in Houston,” Duffy said.
After crude briefly traded below $30 per barrel in early 2016, prices have recovered to levels that make exploration and production in the Permian Basin profitable again, Duffy noted.
“Oil is coming back. We’re back in the black,” he said, adding that the rig count has climbed significantly from a year earlier. “The frackers are back, and they are back big time.”
Duffy also reviewed performance across other real estate sectors in the region:
Residential: “Housing is performing very well.” Inventory is tight and sales are strong, although Duffy cautioned that Hurricane Harvey caused significant hardship and disruption for many homeowners and neighborhoods.
Industrial: Warehouse demand is evolving with the rise of e-commerce. Industrial space plays a critical role in retail distribution and home delivery, and vacancy remains low. “Industrial is going strong and we expect that to continue,” Duffy said.
Retail: Retail vacancy in Houston stays below 6 percent. Well-located, high-quality centers continue to attract tenants, and new retail construction has concentrated around the Grand Parkway outer loop.
Multifamily: Apartment development slowed due to more conservative lending and the prior oil-price downturn, easing the risk of oversupply that had been a concern two to three years earlier. In the aftermath of Hurricane Harvey, demand accelerated quickly and many promotional rent concessions disappeared almost overnight.
The event’s keynote speaker, astronaut Scott Parazynski, praised Houston—often called Space City—for its role in exploration and innovation.
“Houston is a wonderful city with many pillars of growth,” said Parazynski, author of The Sky Below.
Parazynski, who has both summited Mount Everest and walked in space, said that human travel to Mars and eventual habitation are realistic long-term goals. “It’s vital for the nation to invest in space programs,” he added.
