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Houston Office Leasing Diversified in 2016, CBRE Research Reports

Robert Kramp

Robert Kramp

HOUSTON – Houston’s energy companies accounted for only 18 percent of the office leasing activity in the city last year, a significant decline from historical levels, CBRE reports. But, in a demonstration of Houston’s diversified economy, companies in other industries stepped up and leased a large blocks of office space.

Houston’s office occupier demand has diversified, reports CBRE. It’s not all about oil anymore.

Despite gyrations in the oil industry, brokers in the Houston leased 7.6 million square feet of office space in 2016, according to an analysis by Robert Kramp, Director of Research and Analysis – Texas-Oklahoma-Arkansas at CBRE.

“Energy only accounted for 18% of leasing activity in 2016, down from 52% from 2012-2014,” Kramp says. “Houston’s supporting office industries are completing most of the deals in the office market, with legal being one of the most active occupiers. Legal is picking up the slack with its share of leasing activity last year nearly doubling over 2015 volumes, due largely to national law firms opening new Houston offices.”

“Today, sentiment is changing in the Energy Capital of the World as oil prices dance around $55 a barrel and sublease glut backs off,” says Kramp. “In 2016 Houston was saddled with a significant decline in demand in the largest office-occupying sector—energy. But that changed last year. The top four leases of 2016 — totaling 1 million sq. ft. — were non-energy tenants in new or under construction buildings.”

That compares with 2015, when the top four leases were energy-related renewals, he adds.

The top four leases in Houston last year according to CBRE:

— In the 2016 fourth quarter, technology company HP leased 377,905 square feet in Springwoods Village for a two-building campus that will break ground this year.

— American Bureau of Shipping leased 326,800 square feet, also in Springwoods Village in the second quarter of last year.

— Chicago-based United Airlines signed a lease for 237,708 square feet downtown at 609 Main at Texas, a new Hines building.

— Insurance company Lockton took 127,875 square feet at 3657 Briarpark in Westchase.

Houston still has a large inventory of sublease space and the office availability rate at a 20-year-high. But the message is: Houston’s office market continues to churn even without the energy business.

The office leasing market last year in Dallas and Austin was much different than Houston, thanks to diversified economies, Kramp says.

Dallas/Fort Worth is known for its diverse economy that is largely tied to national economic movement rather than one sector in particular.

“Technology topped the Dallas industry list for large office leases in 2016,” he adds. “Between 2015 and 2016, leasing activity among tech companies rose an astounding 333% and also claimed the top lease for 2016. Insurance, a key industry in DFW throughout the current cycle, declined in 2016, mainly due to Liberty Mutual’s 900,000 SF lease overshadowing all others in 2015.”

Austin – Tech continues to power up the Austin office market, too. Of the top 10 leases in the city in 2016, six came from international tech companies expanding their presence in the Live Music Capital and taking space in newly constructed buildings totaling approximately 869,000 sq. ft. “While the Austin office market is known for tech, activity in 2016 was even higher than 2015, where only four of the top leases came from tech companies, totaling approximately 563,000 sq. ft.” he adds.

Austin unemployment hovered around 3%, tenant demand remained robust in during 2016. “Sustained occupier demand has kept the vacancy rate below 10% in the Central Business District (7.8%), Northwest (8.8%) and Southwest (9.7%) submarkets,” says Kramp.

Feb. 22, 2017 Realty News Report Copyright 2017

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