Houston Office Vacancy Crisis: 93 Buildings Report Large Empty Floors

HOUSTON – (Realty News Report) – Need a large block of office space quickly?

Consider Houston. The city currently offers 93 buildings with contiguous blocks of 100,000 square feet or more available for immediate lease or sublease.

Colliers International reports that 93 Houston properties have 100,000 SF or larger contiguous blocks of office space ready for occupants.

Highest Office Vacancy Since 1990

Houston’s citywide direct vacancy rate has climbed to 21.6 percent—the highest level since 1990—according to Madison Marquette’s third-quarter report. That represents a 200-basis-point increase since the fourth quarter of 2019.

The third quarter was especially weak for Houston’s office market. Just 2 million square feet were leased during the quarter, the lowest quarterly leasing total in more than a decade, Newmark Knight Frank reports.

The market is being squeezed by two major forces: the economic disruption caused by the pandemic and a downturn in the energy sector.

Major energy employers that traditionally occupy substantial office space in Houston—Shell, BP and Chevron—have announced layoffs or workforce reductions. Chevron alone recently disclosed plans to eliminate 700 positions in Houston. Its acquisition of Noble Energy could also lead to additional staff reductions and create more sizable vacancies in office buildings.

Madison Marquette reports that Houston experienced negative net absorption of 1.1 million square feet in the third quarter. Year-to-date occupancy losses total about 3 million square feet, a discouraging figure for the market.

On the positive side, the economy has shown signs of recovery from the sharp declines witnessed in spring 2020 when the coronavirus first hit. “As the COVID slowdown subsides and the global economy gradually restarts, expectations are that GDP will continue to recover at a relatively high rate in the next several quarters and that employment will continue to improve. All of this bodes well for the office market in the mid-term,” Patrick Duffy, president of Colliers International Houston, wrote in a market report.

Colliers places third-quarter vacancy at 21.3 percent, up from 19.9 percent in the third quarter of 2019.

Good Deals for Tenants

Although landlords generally maintain their quoted rental rates, concessions have become common. Tenants can often negotiate incentives such as free or reduced rent periods and other favorable lease terms.

For companies able to relocate during the pandemic, this moment presents an opportunity to secure favorable long-term leases. Many firms remain immobilized by uncertainty, so those ready to act now can often find attractive deals.

Demand favors newly constructed Class AA offices and significantly renovated Class A properties, as tenants seek modern, efficient space in prime buildings. Older Class B and C buildings are facing stiffer competition and may struggle to attract tenants unless they upgrade.

How Long Till Full Recovery?

A rapid turnaround is unlikely. The Houston office market may remain soft for an extended period.

“We expect that the Houston office market will continue to show weakness well into 2021 and will not recover to a balanced (12–15 percent) vacancy for many years,” Colliers said.

File: Houston Awash in Vacant Offices

File: Colliers International; Madison Marquette; 1100 Louisiana; 910 Louisiana; Newmark Knight Frank; 811 Louisiana. Houston Awash in Vacant Offices. 10-16-20