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NGKF: Another Year of Rising Vacancy Ahead for Houston Office Market

HOUSTON – The Houston office market, although there are positive signs that healing is on the way, will see an increase in the overall vacancy rate in 2017, according to the Newmark Grubb Knight Frank real estate firm.

After ending 2016 with a 19.6 percent office vacancy rate, the Houston market will see a slight increase to 20.1 percent by the end of 2017, NGKF projects.

Several new office buildings will be completed this year, most notably Hines’ 609 Main at Texas skyscraper in downtown Houston. This year’s deliveries of new space will total 2.4 million SF, reports NGKF.

“It’s going to be multiple years before we reach a full recovery,” said David Wegman, Director of Research – Texas for NGKF.

Houston’s office market will, however, see some positive absorption in 2017, a turnaround from the negative absorption of last year, he said.

Wegman, speaking at NGKF’s 2017 Houston Real Estate Discussion Wednesday morning, said the sublease space supply has peaked at 11.5 million SF. Huge blocks of office space were placed on the market in the last year or two as energy companies reduced the size of their offices and laid off employees. The sublease space market offers some bargains for tenants and the supply is being worked off.

The Energy Corridor and Downtown have the biggest concentrations of sublease space, Wegman said. He said Greenway Plaza is the healthiest submarket in Houston.

Robert Bach, Director of Research – Americas for NGKF, reviewed some national trends. Although there are exceptions in various cities and submarkets, Bach presented some “hot” and “not hot” trends.

Hot (Office ) – Old industrial buildings with a “brick and timber vibe” that have been converted to office space for creative and tech firms.

Not (Office) – Isolated suburban campuses with 1980s-vintage vintage buildings – although Dallas is an exception.

Hot: (Retail) –Street level retail in walkable urban neighborhoods and urban-like developments in the suburbs.

Not: (Retail) –Dead regional malls. But the regional mall problem is not as bad as some believe.

Jan. 25, 2017 Realty News Report Copyright 2017

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