Houston Office Vacancy Climbs as Tenant Companies Retreat

HOUSTON – (Realty News Report) – Houston’s office vacancies continue to rise as a decline in the energy industry combined with the impact of the coronavirus pandemic prompted companies to vacate space.

The city’s office vacancy rate reached 23.4 percent in November, compared to 21 percent a year earlier, according to a report by NAI Partners, a Houston-based commercial real estate firm.

In Houston, known as the Energy Capital of the World, a number of oil companies have laid off employees and vacated office space as drilling activity is down and oil prices have been in the $40-$45 range – barely enough to break even for most oil companies.

Some firms have put their excess office space up for sublease. NAI Partners reports the sublease space supply has started to tick up again, reversing a trend that saw sublease supply burn off from the highs of 2016.

Including vacant space, office space marketed by landlords and sublease space shed by shrinking tenants, some 67.8 million SF of Houston office space is available. That’s equivalent to more than 75 skyscrapers.

“Of the largest office occupiers in Houston and the amount of sublease space they have listed as of the fourth quarter of 2020, many are directly tied to the energy industry—including upstream, midstream or downstream—and oilfield services firms, utilities engineering, and construction firms,” NAI Partners said in a sublease report.

The retreat by tenants has emptied 4.5 million SF of office space this year. It’s called negative net absorption, crisply defined by NAI Partners as “move-ins minus move-outs.”

Houston has 4.7 million SF of office space under construction. The largest building is Hines’ 1 million SF Texas Tower underway on the site of the former Houston Chronicle headquarters building that stood at 801 Texas Avenue.

Other office space will arrive on the market as the result of M&A activity as energy companies are sold.

Of course, actual physical occupancy – how many people are actually going into the office during the pandemic — is down.  As vaccines arrive and employees go back to the office, many questions remain.

Some people will continue to work-from-home several says a week.

“But what will future office space look like and how much space will businesses need? Some say due to social distancing that the private office concept may return stronger than before. The trend has generally been around a 50% office, 50% open concept split. Some experts say private office could end up being as much is 80% of the office space. If that’s the case, firms may be leasing more space,” said Jason Whittington, a partner at NAI Partners in a recent article. ”Others are saying that there could be a hybrid model with the executives back in the office and the other portion of the workforce alternating days in the office.”

A Houston real estate executive who spoke at the 54thannual Real Estate Journalism Conference sponsored by the National Association of Real Estate Editors (NAREE) in early December surmised that offices, in some form and location, will survive for a long time and continue offering a creative workspace.

“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 Jonathan Brinsden, chair of ULI of the Americas for Urban Land Institute  and the Midway real estate investment and development firm.

While formal mentorships can be created online, said Brinsden, informal mentorships – the kind that take place when employees share space and information “in the same room,” is a benefit that doesn’t happen when workers complete their duties solo.

“The office is a culture and collaboration hub,” Brinsden said. “The question is, how do you make it so compelling that people will want to work in the office?”

Dec. 21, 2020 Realty News Report Copyright 2020

File: Houston Office Vacancy Climbs

File: (2) NAI Partners, Jason Whittington. Houston Office Vacancy Climbs. Urban Land Institute. NAREE. Jonathan Brinsden. Midway

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