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Office Vacancy Declines, But Deal Flow Still Pretty Dismal

Houston office supply and demand

Houston office absorption slid back into the black in Q3, according to JLL's Q3 Office Insight report, but don't cheer yet.

With 500K SF of positive absorption in Q3 (the bulk of which was two deals: Kiewit’s 171K SF and Empyrean Benefit Solutions' 108K SF), Houston's year-to-date absorption rose from negative numbers to positive 298K SF. Vacancy dipped 20 basis points to 23.7%.

But deal volume is still slowing. JLL reports lease activity is down 47.6% quarter over quarter and 59.3% year over year. Meanwhile, construction is picking up — 2.4M SF is under construction, including Hines and Ivanhoé Cambridge's 1M SF Texas Tower, which is expected to deliver in 2021.

If trends continue, those projects will do well, but will cause additional pain for existing property, as new-build office towers are soaking up most of the market's lease activity.

On the plus side, JLL said concessions seem to have slowed, and rents rose to $31.40/SF. Overall, it appears the market will remain sluggish for the foreseeable future.

Related Topics: JLL, Houston Office Market