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Houston Office Market to Hit Bottom in 2017, Then Recover Slowly: Q&A with Jon Silberman of NAI Partners

Jon Silberman, NAI Partners

Jon Silberman, NAI Partners

HOUSTON – The Houston office market continues in the doldrums, unfortunately.  Oil prices rise and fall as does the commercial market in Space City. If only developers, tenants and brokers knew when the bottom would hit. To find out more about today’s commercial real estate market, Realty News Report turned to Jon Silberman, Managing Partner of NAI Partners in Houston. Jon has over twenty years of commercial real estate experience primarily in tenant representation and corporate services and is also responsible for the strategic planning, implementation and financial aspects of the firm, which also operates in Austin and San Antonio. In addition to the brokerage work, Jon is also involved in real estate investments and development.

Realty News Report: Houston’s office market has been going through somewhat of a rough patch.  What’s your outlook for 2017?

Jon Silberman: I expect 2017 to be a flat year in which the office market will bottom out, we will see the growth in sublease space flatten out and start to decline. The question is how fast (or slow) – will we absorb the current sublease and direct vacancy – we anticipate a slow recovery unless the energy business surprises everyone and has a faster recovery than expected. Rental rates will continue to decline and concessions will be significant until we can demonstrate significant absorption again. The investment market will start to improve as owners begin to get realistic on pricing and investors regain confidence in the long-term growth of Houston

Realty News Report: We reportedly have more than 12 million SF of sublease space available. Is there more coming?

Jon Silberman: We may see a little more this year but I think we are at the peak or very close to it at this point.

Realty News Report: How long will it take for the office market to recover?

Jon Silberman: Three to five years depending on the speed of the energy recover and how the national economy performs

Realty News Report: The new 1 million SF 609 Main at Texas building by Hines should be completed in early 2017. How will this major new tower impact the market?

Jon Silberman: It is already dialed in since everyone knows it is coming and they have done some leasing. Having said that, additional vacancy is not what the market needs at the moment.

Realty News Report: Shell Oil is vacating downtown. What are the implications of this move?

Jon Silberman: Obviously negative for downtown Houston in the short term – long term I don’t think it really matters.

Realty News Report: Free rent and other tenant concessions are commonplace. How are landlords responding? What’s next?

Jon Silberman: More free rent, larger TI allowance, lower rates until we have absorbed 50 percent or more of the vacant sublease space and fundamentals start to show an upward trend again.

Realty News Report: The Energy Corridor has higher vacancies and a large amount of sublease space. What’s your analysis of this submarket?

Jon Silberman: It’s a bloodbath – the quality of vacancy both direct and sublease is very high and those landlords and sub landlords are going to fight it out to make deals and to steal tenants form one another until demand returns.

Realty News Report: Do you have any other comments?

Jon Silberman: 2017 will be the bottom with a slow recovery from there. New construction has stopped and so supply growth is zero other than sublease. IF the sublease space tops out in 2017 then we will have put a lid on supply and then it’s just a matter of demand and how fast or slow that develops – but it’s hard to see a normalized market again for at least three years.

Nov. 26, 2016 Realty News Report Copyright 2016

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