Flight To Quality Pushes Demand For New Office Buildings In Houston
A few big-name employers have recently opted to move into newer buildings with smaller footprints than their previous office spaces. The flight to quality is driving demand for new office buildings, Avison Young Managing Director and principal Rand Stephens said in a blog post.
"This trend is sparking an increased demand for superior space, and companies are leaning toward newer, more efficient buildings with state-of-the-art interior design to capitalize on the shift in employees' demand for a better workplace experience," he said. "However, the overall space needed ends up being smaller, resulting in a better value for the employer."
For example, Bank of America reduced its office size by 28% in its relocation to new product. The company pre-leased 210K SF at Skanska's Capitol Tower, at 811 Rusk St., which is a 77K SF decrease from its namesake tower at 700 Louisiana St.
Vinson & Elkins and United Airlines plan to slim their offices by more than 35% in their moves. The law firm will occupy 212K SF at the new Hines/Ivanhoé Cambridge building. The airline relocated to a 225K SF office at 609 Main.
"Pre-leasing these new projects and renovating heritage buildings is the key to stabilizing the Houston office market, as high-profile tenants continue to vacate their older office buildings and opt to [move to] newer, modern buildings," Stephens said.
To attract and retain the top workforce, employers want office buildings that offer flexible workspaces, in-house fitness centers, cafés and outdoor patios. This trend, he said, is guiding new office space design and impacting the amount of space being leased.
Limestone Commercial President Brandi McDonald noted a few other trends driving demand for new office properties.
"Tenants are willing to pay more for better quality," she said to Bisnow. "Coworking spaces are contributing to high quality low-cost, low-commitment inventory. Startups begin with great quality and refuse to settle for Class-B."
Despite Houston's thriving economy and the low unemployment rate, the office vacancy rate hasn't been this high since the 1980s. The rate hit 18.3% (which includes available sublease space) for Q2 2018. That is almost 40M SF of direct vacant space unoccupied in the city.
"Employers now have an opportunity to save money on office space by designing collaborative amenity-rich work environments with less square footage per employee," Stephens said.