Houston Office Leasing Surges

HOUSTON – (Realty News Report) – Leasing activity has picked up in the Houston office market. Vacancy is still high and it’s way too soon to issue a clean bill of health.

But commercial real estate brokers report leases are getting signed and the pace has been picking up.

The Houston office market saw 3.2 million SF of leasing activity in the second quarter, Cushman & Wakefield reported. That followed brisk office leasing in the first quarter. So far this year, 6.1 million SF of space has been leased in Houston.

The Energy Corridor and West Houston have recorded impressive leasing in 2023, following some lackluster years.

However, the supply of vacant office space is huge and Houston real estate experts know there won’t be a quick fix.

“Despite this strong activity, our vacancy rate continues to climb as we again saw negative absorption last quarter. Market conditions remain tough and our predictions for the rest of the year are for ‘more of the same,’” commented Chip Colvill, executive vice chairman for Cushman & Wakefield in Houston.

Of course, office vacancy is high across the most of the nation as companies deal with the remote work trend in the post-Covid era.

In recent years, when corporate tenants relocate, they often have been downsizing when they sign a new lease. Consider the three largest leases signed in Houston in the second quarter: LyondellBasell’s lease of 318,504 SF in Williams Tower, Fluor Corp.’s lease of 308,186 SF in the Energy Corridor, and Technip’s lease of 171,600 SF in the Energy Corridor. Those three tenants reduced their square footage by 11 percent, 71 percent and 54 percent, respectively, according to Savills.

Call it “rightsizing.” Call it downsizing. Call it shrinkage. But until it stops and companies start expanding their office footprints again, it’s going to be difficult to register significant improvement in the vacancy rate.

In Houston, office vacancy hit 25.2 percent in the second quarter, up from 24.1 percent a year ago, Cushman & Wakefield reports.

Houston recorded negative net absorption of only 98,000 SF in the second quarter of 2023. That was a big improvement over the first quarter when negative absorption almost reached 800,000 SF, indicating that a lot of space went vacant at the start of the year.

Houston is not alone in the negative absorption scars. Seventy-one of the 92 nation-wide office markets tracked by Cushman & Wakefield experienced negative net absorption during the second quarter.

Some office-building tenants are taking advantage of the lull in the market to lock-in more space for the long haul. Last week, Hines and Cerberus Capital Management announced a total of 152,946 SF of lease expansions at their 75-story JPMorgan Chase Tower in downtown Houston. Existing tenants including JPMorgan Chase, KKR and M6 Midstream, among others, all expanded their offices in the skyscraper.

The building is currently 84 percent occupied.

The JPMorgan Chase Tower, which is the tallest building in Texas, is one of a number of 1980s Houston properties where millions have been spent on upgrades, amenities and recent renovations. “The large volume of expansions at JPMorgan Chase Tower are a testament to the success of the significant renovation investments made at the building and showcase that top-tier, well amenitized office properties continue to outperform,” said John Mooz, senior managing director at Hines.

In comments at the NAREE real estate editors conference, CBRE Global Chief Economist Richard Barkham noted that the nation’s overall vacancy statistics were dragged down by buildings with acute problems. “Eighty percent of the vacancy is in 10 percent of the real estate,” Barkham said.

In the first quarter, the national office vacancy rate was 17.8 percent, the highest vacancy rate in 30 years, according to CBRE.

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