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Downtown Houston Office Profits Have Halved In 3 Years

I-45 in Downtown Houston

Office landlords in Downtown Houston are earning 2.4% less per square foot than they did a year ago, and nearly 50% less than three years ago.

Downtown office owners were making $10.79 profit per square foot at the end of 2017, according to Savills Studley's 2018 Effective Rent Index. In 2014, they were pocketing $20/SF, and even in 2008 amid the recession, they were profiting $14/SF, the Houston Business Journal reports.

The average effective rent Downtown is $45.15/SF, up 3.4% from 2016 to 2017. But concessions have jumped 12% and landlords' operating expenses have increased 0.6%, erasing that bump. 

"Landlords are doing worse in Houston than other markets because the world economy is up, the stock market is up, things are great in the U.S., unemployment is down but the energy sector is still in deep recovery mode," Savills Studley Executive Vice President Drew Morris told the HBJ.

Houston has been offering larger tenant improvement allowances than other major metros, and Savills data shows the concessions bump is the fifth-largest in the U.S., but is far behind the leader — Downtown Manhattan landlords have been granting 24% higher concessions than a year ago, and their effective rent is down 11.2% from 2016 to 2017.

The pace of profit loss for Houston landlords is slowing at least. Savills Studley's 2017 report tracked a 20% decrease in effective rents from 2015 to 2016.