Q2 2017 | Houston Office | Research & Forecast Report

Houston office vacancy increases again over the quarter, now at highest rate since 1994

Houston’s office market continues to struggle as global oil futures trade below $50 a barrel. With no indication that prices will rise in the immediate future, it will take a while to absorb all of the space the energy industry has placed on the market over the last few years. The good news is most of the larger office projects that were started before the oil slump have delivered, and the projects that were in the construction pipeline were put on hold. There are some tenants in the market with a preference for newer innovative space, and certain developers are willing to meet these requirements even in an oversaturated market. Skanska USA recently signed a deal with Bank of America to occupy 200,000 SF in a new building known as Capitol Tower in the CBD and broke ground during the second quarter with the building scheduled to deliver in 2019. This isn’t such great news for the rest of the submarket, as Bank of America will vacate approximately 400,000 SF in its existing Class A building at 700 Louisiana St.

Absorption remained flat, posting about 700,000 SF of negative net absorption. The average vacancy rate rose slightly by 40 basis points over the quarter, and by 230 basis points annually.

Available sublease space decreased slightly but this was primarily due to expiring terms and the space going back to direct marketing by the landlord. There were a few instances where the sublease space was withdrawn by the sublessor. The majority of the sublease space in the market now has 1-3 years of term remaining.

According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created 45,300 jobs (not seasonally adjusted) between May 2016 and May 2017. Most of the recent quarterly job growth occurred in employment services, public education, food services and drinking places, health care, and fabricated metal products.

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