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CBRE: Houston Office Vacancy Up Sharply Over Last 12 Months

HOUSTON – The Houston office market, under pressure with a decline in the energy industry, has seen a sharp increase in office vacancy space and the trends point to more vacancies for the rest of the year, according to a first quarter report from the CBRE real estate firm.

The citywide office vacancy rate hit 14.3 percent in the first quarter, up from 12.6 percent in the first quarter of 2015, CBRE reported.

But a clearer picture of the Houston office market comes into view when sublease space is considered. Many energy firms leased additional office space to house employees during the boom times when oil was over $100 a barrel in 2014. But oil is now less than $40 a barrel. Layoffs are widespread. And energy firms are now putting excess office space up for sublease.

The Houston office market’s availability rate, which includes sublease space, hit 18.3 percent in the first quarter, up from 15 percent in the first quarter of 2015, CBRE reported.

The city recorded a paltry 215,000 SF of absorption in the first quarter. But there are several new buildings that are leased to companies that won’t move into them for a while.

CBRE reports that 16 office projects, with a total of 5.8 million SF, remain under construction. Taking this into account, CBRE Research is forecasting an increase in vacancy to 15.2 percent this year.

While most other sectors of Houston’s commercial real estate remain healthy the office market appears to be hardest hit by oil’s sudden decline.

“Sublease inventory has spiked 179 percent to 8.5 million SF, CBRE said. Rent concessions, including free rent and tenant improvements increased throughout the year with negotiated face rates on prime space for long-term credit remained stable. While prime, well-leased properties are able to hold asking rents, higher-risk properties with large amounts of vacancy, are more willing to adjust rates in order to secure a tenant,” CBRE reported. “New construction, which is concentrated in the CBD, West Loop/Galleria and west Houston sub-markets, will add another 3.3 million SF of vacant space with almost 6.8 million SF of new product delivering this year.”

“Since the late-1980s, the Houston region has recorded more than 25 years of consecutive population gains.  While growth this year will be slow, new jobs added to the city’s employment base and continued in-migration are forecasted to gain even more steam in 2017 and 2018,” Texas/Oklahoma Director of Research and Analysis Robert Kramp said. “These fundamental demographic patterns will support the region’s expanding gross product and, while each local commercial real estate sector is in a varying cycle, Houston’s outlook remains solid.“

April 5, 2016

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