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Colliers: A Huge Jump in Office Vacancy in Houston

Lisa Bridges, Colliers.

Lisa Bridges, Colliers

HOUSTON – Houston’s office vacancy rate skyrocketed over the last year, hitting 18.5 percent in the first quarter, up from 15.3 percent in the first quarter of last year, according to Colliers International.

More new office space continues to be delivered to the market at the same time energy companies are shedding excess space. The completion of Hines’ 1 million SF building at 609 Main in downtown was a huge addition. And although 609 Main is opening over 50 percent occupied, its tenants leave behind vacancy in other properties.

The downtown Class A vacancy rate took a chilling turn, going from 12.7 percent at year end to 17 percent at the end of the first quarter, Colliers reported.

Colliers reported citywide negative net absorption over 700,000 SF in the first quarter. Downtown stats took a hit when Freeport McMoRan completed a buyout of their lease at 717 Texas Avenue in downtown. That dropped 366,000-SF of empty space directly on the market.

The sublease space has declined somewhat from its high of 12 million square feet in 2016. But it’s still over 10 million square feet, Colliers notes, with the largest chunk being 801,990 available in One Shell Plaza.

The good news is construction 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,” writes Lisa Bridges, director of market research at Colliers. “However, as the office construction pipeline has grown smaller and most spec developments have been put on hold, the office market appears to be stabilizing.”

The notable exception is the recent start of Skanska’s Capitol Tower, which will deliver 754,000 SF of downtown office space in the first half of 2019. The foundation of the building was poured in August of 2015 and a parking garage has been built, reducing the construction time. With Bank of America as the lead tenant, Skanska has put the building into high gear again.

But Houston’s job growth is positive, although not abundant, and the sublease supply is subsiding. So Houston’s office market appears to be stabilizing, Bridges said.

“Available sublease space has decreased over the last two quarters and energy sector layoffs have declined,” Bridges said. “The market will most likely remain relatively flat, plodding through 2017.”

May 1, 2017 Realty News Report Copyright 2017

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