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Houston Office Sublease Market Stabilizes, But Huge Blocks Remain Available

Although Houston’s available office sublease space has dropped to one of its lowest points since 2018, there are still 10 office buildings with sublease blocks of at least 90K SF available, according to a Savills report.

Energy Center V in Houston, which has 100K SF of sublease space available.

Houston had about 5.4M SF of sublease space available in the last quarter of 2023 and the first quarter of this year, according to the report. This is down from more than 8M SF available in 2018. The only time since then that the availability has been lower than the last two quarters was in mid-2020, the data shows.

The decreasing availability is starting to align with pre-pandemic levels and shows that Houston’s office sublease market is stabilizing, Savills Managing Director Alecia Schneider said.

“Subleasing is very much an indicator of the health of the office market,” Schneider said. “It’s an easy exit, a low-hanging fruit.”

Houston’s sublease space now makes up less than 10% of Houston’s overall office availability and compares favorably to other large Texas metros, according to Savills. The 5.4M SF in the first quarter was just more than half the 9.8M SF available in Dallas, where sublease offerings made up 15% of the city’s office availability. Austin counts about 5M SF of sublease space, or 24% of the city’s office availability. 

Sublease transactions are faster than traditional office leasing because the spaces are typically move-in-ready, which offers more options to tenants that need space quickly and at a discount, Schneider said. The speed is also beneficial for sublessors that need to offload space, she said, adding that is why there was a spike in available sublease space in the wake of the pandemic.

That surge topped out at more than 8M SF in the fourth quarter of 2022, the report says. Yet despite recent stabilization, numerous large blocks of sublease space remain available. 

The largest share is from oil and gas drilling company NOV, which has about 400K SF available throughout the Parkwood Circle Building and another two buildings in West Belt Plaza, all in Southwest Houston, according to the report. NOV listed the spaces, formerly its headquarters, for sublease last year after it consolidated its office footprint and moved to the Millennium Tower II at 10353 Richmond St., the Houston Business Journal reported

All of the NOV buildings available for sublease are Class-B and built in the early 1980s, which is the type of office stock Houston office experts say holds a disproportionate share of vacancies and keeps the city’s static vacancy higher than other comparable office markets. NOV’s leases don't expire until 2037, according to the Savills report.

Other large chunks of sublease space include the fourth through 10th floors of 1725 Hughes Landing Blvd. in The Woodlands, which account for 206K SF. That space was listed by Exxon Mobil Corp. and has been on the market the longest, 31 months, according to the report.

The other longest-listed sublease spaces are Cheniere Energy’s 189K SF at North Tower in Downtown, which has been on the market for 22 months, and McDermott International’s 100K SF at Energy Center V in the Energy Corridor, which has been on the market for 19 months.

It generally takes six to 18 months to fill a large sublease space, Schneider said. 

Of the city's 10 largest sublease blocks, six belonged to energy and utility companies, the report says. That isn't counting McDermott International, an engineering and construction company for the energy industry.

The cluster of spaces in the energy industry could be a coincidence or a reflection of the size of that market in Houston, Schneider said. The energy industry and Houston’s office market have largely recovered and stabilized, and the big chunks of sublease space reflect more efficient office usage, she said.

“Subleases are the discount market. They’re the sale market because [you’re getting the space] at a fraction of the cost,” Schneider said. “So it’s an opportunistic market. You don’t really want to see a 0%. You want some sublease availability in there.”

Learn more about the Houston office market at our event on Aug. 20.