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The Road to Recovery: Positive Signs in Houston’s Office Market Reported by CBRE

Jason Presley, CBRE

HOUSTON – (Realty News Report) – The competitive Houston office market is showing signs of modest improvement, although a full recovery could be several years away.

CBRE reports 5.2 million square feet of Houston office space has been leased so far this year, up from 4.2 million square feet in the comparable period of 2018.

“Leasing activity has been strong,” said CBRE senior vice president Jason Presley, speaking at the firm’s third quarter press briefing. Presley noted that a diverse variety of tenants have been leasing space, without a heavy dependence on the energy industry.

Overall the Houston office market registered 228,000 square feet of positive absorption in the third quarter, a reversal of the recent negative trends, CBRE reported. Year-to-date the Houston market has recorded over 605,677 square feet of negative absorption.

The office market suffered a negative blow in the third quarter, as Southwestern Energy’s consolidated its offices and vacated 289,000 square feet in Springwoods Village in north Houston.

The overall vacancy rate in the third quarter was 19.3 percent, up from 18.5 percent in the third quarter of 2018, CBRE reported.

Houston developed an office vacancy problem that started in the later part of 2014, when oil prices began to drop. In the following months, energy firms laid off personal and halted expansion plans as oil prices eventually slid below $30 a barrel in early 2016. During the oil price plunge, an oversupply of new office buildings were delivered into a slow market. Vacancy shot upward. By 2016, the supply of sublease space expanded to 11.4 million square feet. Today, the sublease supply has been reduced to 6.7 million square feet in the third quarter of 2019. Working off the sublease space was viewed by some as the holy grail that would lead to a healthy market. But it wasn’t an instant miracle cure.

With some 50 million square feet of office space remaining vacant, full recovery will not come quickly in the Energy Capital of the World.

However, Presley noted that construction of new space is “muted.” Although a number of office buildings are under development, they are mostly under 200,000 SF. The exception is Hines’ 1 million square-foot Texas Tower in downtown.  In total, 2.34 million square feet is under construction – not enough to create much of a supply problem.

The new buildings attract tenants in the flight-to-quality trend. In order to remain competitive with the new space, older buildings are undergoing major renovations.  More than a dozen downtown skyscrapers have major renovation programs underway currently.

Corporations continue to seek buildings with amenities, design and finish-out of spaces that help them attract talented employees. In downtown, Presley said, this means tenant companies want to be near high-quality food halls or Metro rail lines. Buildings with fitness centers, bicycle facilities, rooftop gardens or green space have an advantage.

The competition among office buildings will be fierce in the coming years. “The truth is,” Presley said, “there will be winners and losers.”

Oct. 18, 2019 Realty News Report Copyright 2019

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