(By Ralph Bivins) HOUSTON – Persistent weakness in the energy industry continues to challenge the Houston office market where the supply of sublease space has reached 12.2 million square feet, according to JLL.
The vacancy rate in Houston’s Energy Corridor area climbed to 25.7 percent in the third quarter and that submarket had 432,000 SF of negative absorption, JLL reports.
Activity in the Houston office market is slow – as the energy industry decline has impacted office leasing and discouraged investors from buying buildings, as well, said JLL’s Rudy Hubbard, managing director of Capital Markets and Investment Sales in Houston.
“We’re having a record low number of transactions in 2016,” Hubbard said in remarks at the JLL Gensler Energy Forum at the Houstonian Hotel Monday.
Although a number of energy firms have filed for bankruptcy, building owners are continuing to receive adequate rental income, even in buildings with sizable sublease availability, Hubbard said.
Oil prices have recovered somewhat from earlier this year when West Texas Intermediate dipped below $30 a barrel.
Bruce Rutherford, a leader in JLL’s Global Energy Practice, said the slight rebound in prices and drilling activity will stimulate some hiring in the oilfields, but it is unlikely to translate into hiring white collar workers to fill Houston office space.
Rutherford said the energy layoffs have not come to an end. He commented that he recently learned that more Houston layoffs are coming soon at a major oilfield services firm.
“We’re in for more bad news before the news becomes positive,” Rutherford told the audience.
Many companies are in “survive mode” and are cutting costs until the downturn has passed, said Dean Strombom, principal and energy practice leader at the Gensler architecture firm.
“The energy companies balance the need to maintain a trained workforce prepared for the future, while keeping corporate spending at a low level, Strombom said.
Strombom said designing workplaces that appeal to Millennials is critical for energy firms, which generally tend to have younger and older workers, but not as many middle-aged employees.
JLL’s Lindsay Brown, who works in the Denver office of JLL, commented that most of the cities with significant concentrations of energy companies have a lackluster image in the minds of Millennials. Denver, however, is an exception among energy markets and studies show it is considered a cool city by many Millennials.
Some re-hiring is being done by the energy companies, although at a modest pace.
Jenny McCauley, senior vice president in the Houston headquarters of Southwestern Energy, said her firm has re-hired about 60 people in recent months after a major workforce reduction.
Southwestern Energy, which has a new office building near the Exxon Mobil campus in Springwoods Village north of Houston, laid off 1,100 people in January 2016.
Southwestern Energy had its offices in the Greenspoint area before relocating in 2015 to a new building developed by the Patrinely Group. She said that some Southwestern employees expressed concerns about security in Greenspoint.
Oct. 4, 2016 Realty News Report Copyright 2016