Published Oct 15, 2021 by A.J. Mistretta
Pandemic induced weakness in Houston’s office market is creating significant opportunities for tenants seeking higher quality space and concessions. The shifting dynamics are also making the Houston market more attractive to companies eyeing relocation from more expensive coastal cities.
Much like other major U.S. markets, Houston is striving to overcome the challenges brought on by the pandemic’s uncertainty, according to a Q3 report on the local office market from commercial real estate group JLL. During the most recent quarter that ended September 30, the office market recorded 268,509 square feet of negative net absorption, bringing the total to 2.2 million square feet of occupancy losses so far this year. Total vacancy in the market stands at 27.2%, which is a new high.
JLL Senior Research Analyst Isabel Choi said that despite the most recent losses, the decline rate in absorption is slowing, suggesting some improvement. “I don’t think the market is turning a corner yet,” Choi cautioned. “Vacancy is expected to peak in the high 20%-range in early 2022 and will begin a slow recovery.”
The current market dynamics are creating a “flight to quality” among tenants looking for better digs at cheaper or comparable rates. “The next 6 to 12 months will be an opportune time to execute a lease in the office market,” Choi said. “As new sublease space continues to be added to the market, there are also some long-term, move-in ready sublease availabilities for companies willing to consider those options. These can offer discounted prices in terms of rents to large-scale tenants with good amenities.”
Choi said Texas is seeing more activity from companies looking to move from West and East Coast markets. “Based on JLL’s tracking of recent corporate moves, the Houston metro has seen greater activity from new and expanding companies as well,” she said.
The prospective tenant mix is similar to what it was pre-pandemic, Choi said, led by companies in the energy/utility and banking/insurance industries, as well as back-office health care. There’s also growing interest among operators of coworking spaces and executive suites looking to satisfy increased demand among flexibility-seeking tenants.
Houston’s growing population, relatively low cost of living and diversity are all factors that continue to work in the office market’s favor, Choi said.
JLL is a Partnership board member company.