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Oil Price Crash Pushes Houston Office Market to Its Lowest Point in 20 Years

HOUSTON – Houston’s office market is at its worst point in 20 years.

The supply of sublease space has soared as new buildings have been built with few or no tenants ready to move in.

The availability rate (the amount of sublease space and the empty office space directly available from landlords) hit 19.8 percent in the second quarter, CBRE reported. That’s the highest point since availability hit 20.3 percent in 1995.

There is no quick fix. An additional 4.2 million SF of office space is still under construction and CBRE reports another 1 million SF of office space will be dumped onto the sublease market in the third quarter.

“It’s going to take a while for this to burn off,” says Robert Kramp, director of research and analysis for CBRE. By that, he means multiple years – not months – to digest the oversupply. “It’s going to take longer than we anticipated.”

Houston developers built more than 26 million square feet of space over the last five years. There won’t be many – if any – new office buildings started in the next few years. But the damage has been done. The oil companies that needed more office space three or four years ago are in shrinkage mode due to the oil price crash.

The Energy Corridor, west Houston and Greenspoint are suffering the most pain, while some submarkets seem to be immune.

Citywide, the Houston office market had negative absorption of 67,000 SF in the second quarter, CBRE reported. It was the first time in 21 quarters that Houston had negative absorption, meaning more office space was emptied than filled.

The trends are in place. The office market is expected is to get worse in 2017. Even a surge in oil prices will be too little, too late. CBRE says the citywide availability rate could exceed 21 percent next year – and in fact, it already exceeds 21 percent in most of suburbia.

Ralph Bivins is editor of Realty News Report, a Texas-based publication. 

July 13, 2016

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