Office Leasing Activity Plummets
Office leasing plummeted from 3.8M SF in Q4 ’14 to only 2.1M SF in Q1 ’15. Where's the silver lining?
The huge fall is due to Houston’s energy-heavy absorption activity lately, Savills Studley research manager Tim Wingfield (pictured) tells us. Over the last four years, nearly 52% of our office leasing was from energy companies, and another 13% came from engineering. Savills Studley EVP Steve Biegel (below, with students at WorkFaith Connection) tells us oil prices still below $60/barrel are causing energy tenants to hit pause on new commitments.
The drop in absorption pushed office vacancy up 2.7%. (We now have 20.5% overall vacancy across asset classes.) But Class-A is really the problem, Tim says; top-tier vacancy leapt 3.9% to 21.2%. Meanwhile, there’s a real shortage of relatively inexpensive Class-B space. Only 37% of Houston’s big blocks of available space (50k SF contiguous or larger) are Class-B. The disparity is even greater when you compare square footage—88 Class-A buildings have big blocks totaling 17.6M SF available. On the other hand, 51 Class-B buildings only have 7.1M SF of contiguous space available.