Houston Office Market Disappointingly Slow Even In A Strong Economy-58M SF of Vacant Space Citywide

HOUSTON (BISNOW) – August 8, 2019 – Absorption came in strong for the second quarter at 684K SF; however, it was counteracted by the delivery of 754K SF of office space in the Bank of America Tower in Downtown Houston, according to Transwestern.

“The recovery has been a lot slower than we thought it would have been,” Avison Young principal Charlie Neuhaus said. “At the beginning of the year, we were optimistic that we would have positive absorption for the year, but I don’t think we are going to have that this year.”

The Houston office market is a long way from the heyday before oil prices dropped in 2014. There is 58M SF of vacant space citywide and availability is at 25%. “The high availability in the market is not likely to change over the next year,” said Transwestern Executive Vice President Eric Anderson, who will be a panelist at the Houston State of Office event Aug. 28.  Not all things are bad. Most property types, from industrial, retail and multifamily, are on fire with new developments. The local economy is strong with low unemployment and positive job and population growth.  Texas’ unemployment rate dropped to 3.5% in May, the lowest since December 1969, according to the Texas Workforce Commission. Job growth is expected to eventually improve overall absorption, though it is critical to monitor the ongoing discussion of a global recession, Anderson said.

Tenants are the winners of this cycle, and are taking advantage of the soft market. Companies are often taking less space, but have been willing to pay more for the new space, Neuhaus said. They have improved their efficiency from productivity to space requirements. Energy companies, the bread-and-butter of the Houston office market, have mastered profitability with oil prices near $50. However, those companies are not making long-term decisions, Neuhaus said.  “Limited activity from the energy sector has kept Houston’s office absorption low despite generally strong job growth