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Colliers: Houston’s Retail and Industrial Markets are Good; Other Sectors, Not So Much

Patrick Duffy

Patrick Duffy

HOUSTON – Houston has an oversupply of office space, hotels and apartments, but the market looks good for shopping centers and industrial buildings, says Pat Duffy, president of Colliers International’s Houston office.

However, some of Colliers’ year-end research is startling.

Consider: only 125 apartment units were absorbed in the fourth quarter of 2015, while some 29,000 units are under construction.

“We’re out over our skis in multifamily,” Duffy told a crowd of 400 at the Houston Country Club for the Colliers International Trends 2016 Commercial Real Estate Market Update.

With 100 apartment complexes now under construction, Duffy says Houston multifamily is destined for negative absorption in 2016. In other words, many of the new apartment projects will have units that remain vacant for a long time.

The oversupply of office space will not vanish quickly either.

Consider: The suburban Class A office vacancy rate has risen to 16 percent, up from 10.2 percent at the end of 2014, Colliers reports.

Some 8 million square feet of office space is under construction in Houston and the oversupply will become more acute as the buildings are finished.

With West Texas Intermediate crude at $30 a barrel, energy companies are laying off employees and cutting capex budgets. So the companies, which signed leases in 2014 when oil was $100 a barrel, are placing huge blocks of brand new office space on the sublease market.

Colliers reports Houston has 8 million square feet of available sublease space and 6 million of that is in Class A buildings.

West Houston, where the Energy Corridor is located, has an abundance of sublease space and over 2 million square feet in under construction there.

On the north side of Houston, Greenspoint has a 20 percent vacancy rate, Duffy says.

Colliers reports the citywide office vacancy rate was 15.4 percent at the end of 2015, up from 11.1 percent at the end of 2014.

Duffy also said retail is the strongest sector in the Houston commercial real estate market.

The retail vacancy rate was 5.8 percent at the end of 2015, down from 6.1 percent a year earlier, Colliers reports.

The Houston area industrial market had a 5 percent vacancy rate at year-end.

“Industrial is fat and happy, for the most part,” Duffy said.

Feb. 4, 2016

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