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.