Slow and Steady – State of the Houston Office Market

Slow and Steady – State of the Houston Office Market August 13, 2019

It’s been nearly five years since the economic downturn began (Q3 2014 – Q2 2016). During the second quarter of 2016, the price of oil averaged $45/bbl, unemployment was nearly 5% and more than 11 million square feet (msf) of space was listed on the sublease market. Since then, Houston’s economy has gained momentum and remained strong.

The price of oil is now averaging above $50/bbl (a high in the $70s during October of 2018), unemployment has fallen to 3.8% and the available sublease space in Houston is down to 6.8 msf. We are moving at a snail’s pace, and fortunately, it’s in the right direction. The economic fundamentals are there, but cautious optimism lingers through the Bayou City.

There is no doubt that Houston currently has one of the highest vacancy rates in the country, hovering quarter to quarter between 16% to 18%, but we are inching our way back to recovery. The slow pace seems to be perpetuated by trends such as flight-to-quality, the pressure on class A heritage buildings to make incremental upgrades/add amenities, and the hesitancy of large companies to make long-term commitments.

There is light at the end of the tunnel as several submarkets, including the Katy Freeway West/Energy Corridor and the Woodlands, show encouraging signs of recovery with increased leasing activity and development. Near the Grand Parkway, Freeway Properties recently broke ground on Phase II of Katy Ranch Offices, signifying confidence in the submarket. Phase I of the office development is fully occupied.

The NASA/Clear Lake submarket has potential for new development as the robust industrial sector shows interest in office space closer to their warehouses and facilities. The Houston Spaceport and NASA’s Gateway program will also likely bring jobs to the area that will spur the need for more office space.

With record-breaking job and population growth and a booming economy, Houston’s office market should be poised for a speedy recovery, but it’s slow and steady. Don’t worry Houston, we’ll get there.

Second Quarter 2019 Houston Office Market Report

(Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)


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