HOUSTON – The Houston office market remains stalled. As oil prices fluctuate, commercial real estate in the Bayou City continues to react. Developers, tenants and brokers alike wish they knew exactly when the bottom would arrive. To get a clearer picture of the current market, Realty News Report spoke with Jon Silberman, Managing Partner of NAI Partners in Houston. Silberman brings more than two decades of commercial real estate experience, primarily in tenant representation and corporate services. He oversees the firm’s strategic planning, implementation and financial operations across Houston, Austin and San Antonio, and is active in real estate investment and development.
Realty News Report: Houston’s office market has faced challenges. What is your outlook for 2017?
Jon Silberman: I expect 2017 to be essentially flat — a year in which the market bottoms out. We should see sublease inventory stop growing and begin to decline, but the pace of recovery will likely be slow unless the energy sector rebounds faster than most anticipate. Until absorption becomes meaningful again, rental rates will continue to slide and tenant concessions will remain sizable. The investment market should begin to recover as owners adjust expectations on pricing and investors regain confidence in Houston’s long-term growth prospects.
Realty News Report: Reports indicate more than 12 million square feet of sublease space. Will that number increase?
Jon Silberman: We may see a little more sublease space this year, but I believe we are at or very near the peak.
Realty News Report: How long will it take for the office market to recover?
Jon Silberman: Recovery will likely take three to five years, depending on how quickly the energy industry rebounds and how the national economy performs.
Realty News Report: The new 609 Main at Texas tower, a roughly 1 million square foot project by Hines, is slated for completion in early 2017. How will that affect the market?
Jon Silberman: The market has already factored it in, since leasing activity has been public and anticipated. Nonetheless, any additional vacancy is unwelcome while absorption remains weak.
Realty News Report: Shell Oil is vacating downtown. What are the implications?
Jon Silberman: In the short term, that’s negative for downtown Houston. Over the long term, I don’t believe it will change the fundamentals dramatically.
Realty News Report: Free rent and other tenant concessions have become common. How are landlords responding, and what should tenants expect next?
Jon Silberman: Landlords are offering more free rent, larger tenant improvement allowances, and lower base rents. Those trends will persist until the market absorbs a meaningful portion of available sublease space and fundamentals begin to improve.
Realty News Report: The Energy Corridor has higher vacancies and abundant sublease space. What’s your take on that submarket?
Jon Silberman: It’s been brutal. The quality of both direct and sublease vacancies is high, which means landlords and sublandlords will aggressively compete on price and concessions to retain or attract tenants until demand returns.
Realty News Report: Any final thoughts?
Jon Silberman: I expect 2017 to mark the market’s bottom, followed by a slow recovery. New construction has paused, so supply growth outside of sublease inventory is effectively zero. If sublease availability peaks this year, we’ll have capped supply and the pace of normalized recovery will depend entirely on demand. Given current conditions, a return to a balanced market is unlikely for at least three years.
Nov. 26, 2016 Realty News Report Copyright 2016