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Global Conflict Is Putting Pressure On Energy Companies, But It Isn't Driving Houston's Office Market So Far

Houston energy firms have had to ramp up operations due to the war in Ukraine, but they aren't necessarily changing their office space needs amid rising rents, labor shortages and the hybrid work trend.

Many energy companies are keeping their offices, but those looking to move to cheaper pastures are choosing neighborhoods like Houston's Westchase.

The war in Ukraine is driving up prices and increasing U.S. investment in oil and gas, Wealth Management reported, with the U.S. overtaking Russia as the biggest supplier of liquified gas to Europe for the first time in June.

But that hasn't translated into energy companies signing big new leases, with many continuing to work from home and rents on the rise.

Office rents have risen $3 to $32 per SF in Houston while office vacancy is relatively the same year-over-year, according to Wealth Management, which cites that as a sign energy tenants are skittish to move and pay more rent somewhere else.

Other prominent energy markets, like Dallas-Fort Worth, have sustained rent hikes of about $6 per SF year-over-year, while Denver has risen $1. Houston and Denver are both seeing positive space absorption, but that means more competition for landlords.

“We have finally seen some minimally positive absorption of space in Houston the last two quarters,” JLL International Director Bruce Rutherford told Wealth Management. “But research shows that most companies are planning to sign new leases for less space than they currently have.”

New deals from companies like Bechtel and Cheniere Energy Partners mean Houston saw a 21.5% quarter-over-quarter leasing volume increase, according to CBRE data cited by Wealth Management. But sublease space availability has risen as well, now sitting at 7.6M SF, which Wealth Management states might make it more difficult for landlords to raise rents further.

“Uncertainty [because of inflation and recession fears] diminishes business activity, and that shows up in the real estate markets right away,” Rutherford said.

Rutherford also said many energy tenants are renewing leases to avoid paying higher rents in newer buildings.

Related Topics: CBRE, JLL, Bruce Rutherford