Houston's office market has been reeling, but as the price of crude slowly climbs, office has begun a recovery. Though many clouds still hang over the millions of square feet of vacant space, a silver lining is emerging.
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Q1 reports from JLL show 2017 started the same way 2016 ended. Total vacancy rose for the ninth consecutive quarter to 20.9%, largely due to Freeport McMoRan's decision to vacate 355K SF at 717 Texas. Net absorption was negative for the fifth consecutive quarter, seeing another 512K SF of net move-outs during Q1. The result is a 1% decrease in asking rents with continuing expansion of concessions.
That is the bad news. But total sublease space contracted for the second consecutive quarter to 11.3M SF. In the last six months, total sublease space has dropped 900K SF. Houston's construction pipeline is at its lowest point since Q3 2012, which should ease some supply problems throughout the market.
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Even better, nearly 61% of the 3.3M SF delivering this year is pre-leased. But given that leasing activity has underperformed its 10-year average in the last five quarters, Houston's office market has a long road ahead. JLL predicts market conditions will continue toward improvement through 2017, albeit at a slow pace.
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