Space City: Houston Awash in Vacant Offices, Highest Vacancy in 30 Years

HOUSTON – (Realty News Report) – Need a huge block of office space fast?

Try Houston. It’s got 93 of them – spacious, teed up and ready to go for immediate move-in.

Colliers International reports 93 Houston buildings have 100,000 SF or larger contiguous blocks of office space available for lease or sublease.

Highest Office Vacancy Since 1990

Houston’s citywide direct vacancy rate is up to 21.6 percent, the highest level since 1990, according to the Madison Marquette third quarter report. That’s a 200 basis point jump since the fourth quarter of 2019.

The third quarter was not for good for the Houston office market.

Only 2 million SF was leased in the quarter – the lowest quarterly leasing total in more than a decade, reports Newmark Knight Frank.

The Houston office market suffers as the pandemic is choking the economy and the energy industry is in retreat – a double whammy of sorts.

Shell, BP and Chevron – all three big users of office space in Houston – have announced layoffs are in the offing. Chevron just revealed 700 employees will be excised in Space City. Plus, Chevron’s recent acquisition of Noble Energy could turn out ugly for some employees, and it may result in some additional big chunks of vacant office space, too.

Madison Marquette reports Houston suffered 1.1 million SF of negative net absorption in the third quarter. The year-to-date total of 3 million SF of occupancy losses is a discouraging stat.

On the upside, the economy has recovered somewhat from the catastrophic declines in the Spring when the coronavirus hit. “As the COVID slowdown subsides and the global economy slowly restarts, expectations are that GDP will continue to recover at a relatively high rate in the next several quarters and that employment will continue to improve. All of this bodes well for the office market in the mid-term,” Patrick Duffy, president of Colliers International Houston wrote in a market report.

Colliers pegs third quarter vacancy at 21.3 percent, up from 19.9 percent in the third quarter of 2019.

Good Deals for Tenants

Landlords hold tightly to quoted rental rates, but concessions are plentiful, according to people in the commercial real estate industry. Free rent can be obtained.

The silver lining is the opportunity for tenants. Many companies are frozen in place during the pandemic. But companies that can move now may be able to lock-in some good long-term deals.

The opportunities for new Class AA office buildings and significantly renovated Class A properties are good, as tenants gravitate to prime buildings. Older Class B and C buildings face tough competition. The new Class A buildings outperform.

How Long Till Full Recovery?

There is no quick fix or magic bullet in sight. The woes of the Houston office market may persist for a while.

“We expect that the Houston office market will continue to show weakness well into 2021 and will not recover to a balanced (12-15 percent) vacancy for many years,” Colliers said.

File: Houston Awash in Vacant Offices

File: 2 Colliers International. Madison Marquette. 1100 Louisiana. 910 Louisiana. NKF, 811 Louisiana. Houston Awash in Vacant Offices. 10-16-20