HOUSTON – Houston’s office vacancy rate surged over the past year, reaching 18.5 percent in the first quarter, up from 15.3 percent in the same period last year, according to Colliers International.
New office space deliveries continue to enter the market even as energy companies scale back and return excess space. One of the largest additions was Hines’ 1 million square-foot tower at 609 Main in downtown Houston. Although 609 Main opened more than half leased, many tenants relocating there left vacancies in other buildings.
Downtown Class A vacancy widened sharply, rising from 12.7 percent at year-end to 17 percent by the end of the first quarter, Colliers reported.
Citywide, Colliers recorded negative net absorption exceeding 700,000 square feet in the first quarter. Downtown figures were further affected when Freeport-McMoRan surrendered their lease at 717 Texas Avenue, adding about 366,000 square feet of vacant space to the market.
While sublease availability has eased somewhat from its 2016 peak of roughly 12 million square feet, it remains above 10 million square feet. One of the largest single blocks of sublease space is 801,990 square feet at One Shell Plaza.
The encouraging sign is that construction activity is slowing.
“Houston’s office market has struggled over the past few years with rising vacancy and slower-than-average job growth due to a weakened energy market,” said Lisa Bridges, director of market research at Colliers. “However, as the office construction pipeline has shrunk and most speculative developments have been put on hold, the office market appears to be stabilizing.”
A notable exception to the slowdown is the restart of Skanska’s Capitol Tower, a project that will deliver approximately 754,000 square feet of downtown office space in the first half of 2019. With the foundation poured in August 2015 and a parking garage already constructed, the project’s timeline shortened. Bank of America’s commitment as the lead tenant has accelerated construction activity.
Overall job growth in Houston has been positive, though modest, and the supply of sublease space is gradually declining. These trends suggest the office market is beginning to steady, Bridges noted.
“Available sublease space has decreased over the last two quarters, and energy sector layoffs have slowed,” Bridges said. “The market will most likely remain relatively flat, progressing slowly through 2017.”
May 1, 2017 Realty News Report Copyright 2017