Oil Companies Delivering Bad News as Houston Office Market Sags

HOUSTON – (Realty News Report) – The energy industry is a drag on Houston’s office market, as the city’s vacancy rate is rising and oil and gas firms are considering additional cut backs, according to industry experts at NAI Partners.

The citywide office vacancy rate is at a 20-year high, over 22 percent vacant, according to a recent Houston survey by NAI Partners.

“The oil and gas sector has created a vacuum,” said office leasing veteran Dan Boyles, a partner at NAI. “We have a lot of companies that have a lot of excess space. All of the clients and prospects that I talked to are looking for ways getting out of (their office leases) whether it be by subleasing on restructuring a lease.”

Houston’s office market has hit with problems associated with coronavirus pandemic, in addition to declines in the energy industry, which has battled a freefall in oil prices and a sharp decline in drilling activity.

As far as Houston’s office market is concerned, the pain from the oil crash has been worse than Covid, Boyles said on NAI’s Wednesday conference call with journalists.

“Covid has created a slowdown in decision making and a lot of thought about that they are going to do with their space,” Boyles said.

But talks with energy companies are more serious, Boyles said and perhaps, existential in nature. He mentioned one unnamed energy company with offices near the Katy Freeway that is preparing to vacate a sizable amount of office space later this year.

So far this year, Houston’s office market has registered 1.7 million SF of negative absorption, meaning a lot of office space has become vacant in 2020.

M&A = Vacant Office Space

Mergers and takeovers of energy companies, such as Occidental Petroleum’s acquisition of Anadarko Petroleum may also result in additional vacancy.

But experts in the Houston office market are expecting a few more hard knocks before improved stable conditions prevail.

Filling the gaping hole of vacancy will not be an overnight task.

In prior energy downturns, energy companies have closed down offices in secondary markets, such as Midland or Tulsa, and relocated the employees to Houston, known as the Energy Capital of the World.

Companies operating in oil and gas and firms in related businesses have been a mainstay of Houston office tenancy for decades. But with approximately 60 million SF of Houston office space sitting vacant, it’s going to take a lot more than just the oil business to fill the oversupply of vacant space. New industry is needed.

Houston needs an influx of office space users – companies that can chew up big chunks of vacancy, said Jon Silberman, managing partner of NAI Partners.

“That’s the big question – ‘Where is demand going to come from? “ Silberman said. “We really need a new demand driver.”

File: Oil Companies Delivering Bad News