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The Timetable for Full Recovery of the Houston Office Market

Colliers International Houston President Patrick Duffy addresses the audience at the Colliers Houston Trends 2020 event. Photo credit: Ralph Bivins

HOUSTON – (Realty News Report) – The timetable for full recovery of Houston’s office market is uncertain. Energy firms, which have traditionally gobbled up Houston office space aren’t in expansion mode.. Some are saying the office sector won’t solid again until after 2030 – or perhaps even a dozen years from now.

“We have roughly a 12-year supply of office space,” said Colliers International’s Houston President Patrick Duffy, speaking at Colliers Houston Trends 2020 event in late January.

There are exceptions, of course. The office markets are good in The Woodlands and Fort Bend County, for example. Outstanding Class A properties and brand new buildings report strong leasing activity and high occupancy.

But overall, the citywide office vacancy rate is at 19.3 percent, Colliers reports, down slightly from the 19.4 percent reported a year ago.

And 3.6 million SF of new construction is underway.

“If you do the math, it’s not real pretty,” Duffy said. “The office market is going to be a little ugly for a while.”

Construction of new office space, dedicated to the pursuit of the “flight-to-quality” market phenomenon does not seem large when compared to the overall market of 229.2 million SF in Houston’s total office inventory, according to Colliers.  However, since 2015 some 23.1 million SF has been delivered, in addition to the 3.6 million SF now under construction.

The supply of sublease space has been whittled down in the last three years. Tuesday’s announcement that Occidental Petroleum has leased an additional 92,000 SF in Greenway Plaza is significant. It is solid confirmation that Occidental has committed to Greenway and the firm’s 814,000 SF of Greenway space that was up for sublease last year, is no longer in play in the sublease market.

But OXY is expected to be vacating the former Anadarko Hackett Tower in The Woodlands, a 30-story, 595,854-SF office tower at 9950 Woodloch Forest Drive. Colliers will be handling the leasing of that building.

Colliers’ fourth quarter report cites a sobering statistic. Seventy-three office buildings in Houston have 100,000 SF or more of contiguous space available for sublease.

Meanwhile, corporate tenants continue to flock to the new space and prime Class A buildings. The new buildings help companies attract and retain talent.

In the larger picture, commercial real estate in Houston should have a positive year, with steady growth in most sectors in 2020, Duffy said at the Colliers event.

The bright spots outweigh the negatives.

In January of this year, about 21 million square feet of industrial space was under construction in Houston, according to a report by Colliers’ Kent Willis.

Large projects are being kicked off at a rapid pace. Clay Development and Construction is developing a 1.3 million SF distribution project for Medline Industries. A 2 million SF project is underway for Ross Stores. Hines is developing a large spec project on the south stretch of Beltway 8, near Highway 90.

But industrial space is still being absorbed at a fairly steady clip. The fourth quarter vacancy rate was 6.9 percent, up from 5.4 percent at the end of 2018.

Duffy said industrial brokers might want to “tap the brakes” on construction somewhat.

Investors have shown a strong interest in Houston industrial space. The industrial market is getting a yellow light in 2020, and no emergency alarm bells are going off — yet.

And overall, Duffy believes 2020 will be a pretty good year for commercial real estate.

Feb. 5, 2020 Realty News Report Copyright 2020

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