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Avison Young: Houston Office Market One of the Most Tarnished in International Study

Rand Stephens

HOUSTON – Houston’s supply of empty office space, expressed as vacancy rate, is one of the largest in the nation, according to a new report by Avison Young.

Houston, with a 16.8 percent office vacancy rate, the second highest in the U.S., behind Fairfield County, Conn. with 17.8 percent vacancy.

Atlanta, with a 16 percent vacancy rate, ranked third.

According to the report, of the 64 office markets tracked by Avison Young in North America and Europe, which comprise almost 6 billion square feet, vacancy rates decreased in 40 of the markets as nearly 52 million square feet was absorbed on an annualized basis.

The Houston office vacancy has risen significantly over the last year, from 14.1 percent at mid-year 2016 up to 16.8 percent at mid-year 2017, Avison Young said.

Shrinkage by energy firms, hurt by declining oil prices, resulted in a glut of sublease space in Houston.

“Although, we’re seeing small signs of improvement, there is still a lot of vacancy. And, with 11 million square feet of sublease space available, as these leases expire, this shadow inventory may have the effect of pouring gasoline onto the fire,” reports Avison Young principal Rand Stephens, managing director of the firm’s Houston office.

“The Energy Corridor in west Houston and the Greenspoint submarkets have been hit hardest. The office inventory in west Houston increased dramatically from 2010-14. Fortunately, the new construction was responsibly financed with significant investor equity and pre-leasing with credit-worthy companies to give owners “staying power”. However, it looks like many of the energy companies leased a lot of space for future growth,” Stephens wrote in commentary published this week. “So, not only do these companies not need the future expansion space, but much of the existing space they were occupying is also unnecessary.”

Meanwhile, Dallas, where vacancy remains above 14 percent, had 4.7 msf of absorption (the highest in the country) and enjoyed corporate expansion and build-to-suit construction activity, Avison Young said.

The Avison Young report also addressed long-term global trends.

“The office sector and commercial real estate, in general, are not immune to the effects of globalization and technological innovation,” comments Mark E. Rose, Chair and CEO of Avison Young.

“Rapid change has given rise to the idea that technological advances could render physical real estate increasingly obsolete. However, historical evidence suggests that technology is just as likely to create new jobs as to displace them. For example, the likes of Amazon and WeWork are among the occupiers that feature most frequently in our report’s survey of the largest lease transactions across Avison Young markets,” Rose said.

“Amazon’s success in the digital realm is translating into increasing demand for physical space – not only in the retail arena, but also the industrial and, now, office sectors, pointing to a new driver of demand in the office market as the e-commerce industry continues to grow. Meanwhile, the growth of WeWork and other providers of co-working and space-sharing services demonstrates that business will still require physical workplaces, even as we move toward an interconnected world offering anywhere-anytime access to skills on demand.”

The insights were part of Avison Young’s Mid-Year 2017 North America and Europe Office Market Report.

Aug. 17, 2017 Realty News Report Copyright 2017

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