As companies continue the move to high-quality buildings closer to their workers’ homes, half of Houston’s first-quarter office leasing activity happened in West Houston, according to a just-released Savills report.
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Four large leases helped West Houston capture about 50% of the quarter’s leasing activity. Those included offshore drilling company Noble Corp. leasing 110K SF, engineering and construction company Bechtel leasing 82K SF and natural gas storage operator Enstor leasing 43K SF, all at CityWestPlace, according to the report, released Monday.
CityWestPlace is a four-building complex on a 39-acre campus off the Sam Houston Tollway in the Westchase District. The buildings were renovated in 2020 and have 1.5M SF of rentable space.
Parkway, the real estate investment, operations and management firm formed in May by a partnership of Parkway Property Investments and Midway Holdings, purchased CityWestPlace and Post Oak Central in the Galleria area last year from the Canada Pension Plan Investment Board.
The fourth big West Houston lease was Fluor's agreement for 104K SF at Two Eldridge. This will bring the engineering and construction company to the Energy Corridor, moving away from the Sugar Land complex it had occupied for about four decades.
Houston office users continued showing a preference for Class-A office space, according to the report, with availability decreasing at almost twice the rate at the most upscale offices compared to the market overall.
The flight to quality has made some older, less amenitized Houston office buildings functionally obsolete. Experts say Houston will carry a higher static vacancy, or the space expected to consistently remain empty, until those buildings are converted to other uses, demolished or otherwise removed from the inventory.
But with new office building development in Houston at a virtual standstill, “we're very close to our peak of office vacancy in this cycle,” Eric Anderson, executive managing director of agency leasing for Transwestern in Houston, previously told Bisnow.
Savills expects availability to remain relatively flat as leasing activity stabilizes around the five-year quarterly average. Leasing activity ticked up 16% in the first quarter compared to the previous quarter, with about 2.3M SF filled, the report says.
That represents a 5.7% decrease from last year, however.
Available sublease space fell substantially compared to Q1 2023, from 7.5M SF to 5.5M SF, according to the Savills report.
Asking rents increased 4% year-over-year to an average of $31.46 per SF, but net effective rents are expected to be lower as landlords offer concessions like lengthy free-rent periods and tenant improvement allowances to lease up their buildings.
CORRECTION, APRIL 2, 2:44 P.M. CT: A previous version of this story misidentified a company that leased space at CityWestPlace and the size of the lease. Bechtel leased 82K SF. The story has been updated.
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