HOUSTON – Energy companies are putting sublease space on the market in Houston where an oil price collapse has derailed the expansion plans for a number of firms, according to speakers at a real estate luncheon Tuesday.
“There’s a lot of sublease space coming back on the market,” said Patrick Duffy, president of the Colliers International realty firm in Houston. The BP Americas is releasing a large amount of space, he said.
However, the Houston office market is fairly healthy and a pause in new construction will divert the city from gross overbuilding, Duffy said in remarks to a meeting of the CoreNet Houston and IFMA Houston organizations.
Although oil has declined from more than $100 a barrel last summer, to $50 a barrel today, the Houston market is not headed for a calamity, similar to what occurred in the mid-1980s, Duffy said.
“Don’t look for this market to crater,” Duffy said. “It won’t.”
Houston’s office market has been strong, coming of a record 6.4 million square feet of absorption in 2014, said Michelle Wogan, executive vice president of Transwestern.
Although Houston is leading the nation in office building construction with some 17 million square feet under way, there won’t be many new office projects started anytime soon.
“There’s not going to be any spec office buildings,” Wogan said.
Sublease space is coming on the market, Wogan said, and that may offer opportunities for tenants to get deals.
Unlike previous downturns in the Houston economy and its office market, the recent decline impacted the local office market very quickly, Wogan said.
West Texas Intermediate crude prices began slipping after the summer, but the extreme free fall began right after Thanksgiving when Saudi Arabia and OPEC declined to support oil pricing.
At $50 a barrel, many shale drilling operations lose economic viability, Duffy said. Drilling rigs are being mothballed.
On the upside, Duffy said Houston’s industrial market is strong in many submarkets.
Some 10.2 million square feet of industrial space was absorbed last year in Houston, up from 7.4 million square feet of absorption in 2013, Colliers reported. Citywide industrial vacancy dropped to 4.8 percent at year-end, down from 5.3 percent a year earlier.
But the prevailing thought seems to be Houston’s economy will soften, but not crash – at least nothing like the disaster of the late 1980s.
“We go through these downturns periodically. Everybody is going to be more cautious,” said Craig McPhie, director of global facilities and real estate at the American Bureau of Shipping. “We don’t think is will be as bad as ’85.”