HOUSTON – (Realty News Report) – Houston office vacancy has risen to its highest point since the 1980s and the office market’s recovery may depend on how companies configure their workplaces in the post-pandemic environment, according to the Madison Marquette real estate firm.
Almost 51 million square feet of office space – the equivalent of 50 downtown skyscrapers – is currently vacant in Houston.
The year-end citywide office vacancy of 22 percent, which stood below 20 percent a year ago, is expected to rise in 2021, Madison Marquette predicted.
Many companies are putting office space decisions on hold. Office leasing in the fourth quarter was down 42 percent from last year’s average. Uncertainty freezes leasing activity.
“Houston’s office market was struggling amid a glut of available space even before the outbreak of the deadly COVID-19 coronavirus,” said Wade Bowlin, president of property services, central division of Madison Marquette. “Even though many companies have been able to quickly adapt by taking their workforce remotely and encounter little disruption to their everyday operations, this doesn’t mean this physical workplace shift won’t eventually be felt in the office market in the long-term as companies either reduce or expand their footprints.”
In the post-Covid workplace, many firms may choose to expanded their offices, giving employees more spacious workplaces, in tune with the desire for social distancing. Desk sharing will decline in popularity.
The work-from-home trend is expected to have an impact, although few companies are expected to take the step of shifting to 100 percent home offices.
Mentoring younger employees and immersing new employees in corporate culture cannot be fully accomplished in work-from-home environments, said Jonathan Brinsden, chair of ULI of the Americas for Urban Land Institute and CEO of the Houston-based Midway real estate firm, speaking at a recent conference presented by the National Association of Real Estate Editors.
“A consensus is beginning to form among tenants and institutional partners. More and more companies feel that working from home, with no one in the office, is a detriment,” said Brinsden.
The downturn of the Houston office in 2020 came as the local economy suffered catastrophic job losses, including widespread layoffs at energy firms. Corporate mergers and acquisitions resulted in huge blocks of office space going vacant, a trend that could continue to plague Houston in 2021, Madison Marquette said.
Houston lost 3.9 million square feet of occupied space in 2020, the highest annual negative absorption in 30 years, Madison Marquette reported.
Landlords strive to maintain quoted rental rates, but concessions such as “free rent” and tenant improvement allowances are generous in the Houston office market.
“As tenant incentives remain heavily negotiable, the effective rents are now fluctuating between 20 to 30 percent below the asking rents, as the gap continues to widen. Lease concessions are expected to remain at elevated levels with increased term flexibility and historically high tenant improvement allowances driving the market,” said Madison Marquette’s Kim Shapiro, senior vice president in Houston.
Two major downtown lease extensions were recorded in the fourth quarter. Hess leased 565,913 SF in Hess Tower near Discovery Green park. And TC Energy leased 321,000 SF in TC Energy Center, the landmark tower developed by Hines near the theater district.
Jan 8, 2021 Realty News Report Copyright 2021
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