Houston’s office market leasing activity drops almost thirty-five percent in one year

Houston’s office market continues to struggle due to the downturn in the energy industry, leading to negative net absorption and decreased leasing activity.  Leasing activity has dropped by 34.3% since Q2 2015 and decreased by 20.6% over the quarter. Tenants are renewing existing leases, but more companies are contracting than expanding.

Houston’s office market posted 0.4M SF of negative net absorption during the second quarter, pushing mid-year net absorption down to 1.0M SF.  Houston’s city-wide office vacancy rate rose from 15.2% to 16.2% over the quarter, and the annual rate rose significantly, increasing by 220 basis points from 14.0% in Q2 2015. 

Available sublease space has increased from 6.9M SF to 10.8M SF, growing 55.9% over the year. The majority of this space was leased by growing energy companies addressing their future expansion needs and now that the hiring has stopped and job cuts have occurred, the expansion space is no longer needed.  Some of the larger energy firms with multiple blocks of space on the market for sublease ultimately intend to consolidate operations into space not taken under a sublease.

2.3M SF of new inventory delivered during Q2 2016 and 58.7% of this space is pre-leased.  Houston’s office construction pipeline is shrinking and currently totals 4.0M SF of which 49.7% is pre-leased. The majority of the new space is located in suburban submarkets and is scheduled to deliver over the next 18 months.