Houston Records A Fraction Of Last Year's Office Space Under Construction As Overall Industry Remains Stagnant
A monthly measure of Houston's office market is touting cautious optimism conditions are improving, despite a rise in vacancy over this time last year and more companies expected to clear out of offices soon.
NAI Partners latest market outlook shows overall vacancy in the metro is at 24.9%, up 110 basis points from this time last year. Availability is even higher at 29%, an additional 50 basis points over February 2021, reflecting future expected corporate move-outs, while leasing activity is also down. According to the report, the Houston office market posted 1.7M SF of leasing activity, a 20% drop from 2.1M SF this time last year, marking the lowest amount on record for the first two months of the year.
On a more positive note, net absorption rose to 634K SF from negative 513K SF year-over-year. And the amount of new construction underway dropped 60% from early 2021, stemming the flood of new product as the market slowly tries to recover amid improving pandemic conditions.
A major contributor to a positive trend in absorption, NAI notes, is Hewlett Packard Enterprise moving into its new 60-acre campus and global headquarters at 1701 East Mossy Oaks Road in City Place, where Exxon Mobil announced it would also move its headquarters in January.
The report indicated there was room for optimism big oil profits could portend expanded production and rising employment, with the price of crude oil surging above $125 a barrel in recent days.
"However, rising oil prices have yet to benefit Houston’s struggling office sector where high oil prices have traditionally equaled expansion by energy firms, including absorption of office space," the report cautioned. "For now, these price gains are unlikely to mean more office usage by energy tenants due to an abundance of caution."
NAI reported last month the Houston metro has regained most of the jobs it lost during the early months of the pandemic, but it admits that might not lead to tangible real estate changes.
"The office employment industry/sectors that are fully recovered include administrative support, education services, finance and insurance, health care and social assistance, and professional, scientific, and technical services, however, it’s not clear how many of the office-using jobs will translate to the need for more office space," NAI stated at the time.
Medical office, compared to the greater Houston office market, is seeing considerably less vacancy, NAI stated in a report last month. The medical office market is at about 16.6% vacancy, though it's working with less space.
Those offices that are enticing workers back to the office tend to be Class-A or otherwise upscale facilities, with higher demand for new and shinier offices, Bisnow reported previously.
