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Are We There Yet? Houston's Office Sector Still On The Slow Road To Recovery

With Leasing Activity Well Below Historic Averages and Sublease Totals Growing, City's Office Sector Still Has A Ways To Go
July 5, 2018
Houston’s office market continues to fight against weak leasing activity, rising vacancy, softening rental rates and growing sublease space.

Since the end of 2014, leasing activity in Houston has surpassed four million square feet just twice in 14 quarters. In contrast, from the third quarter of 2011 to the fourth quarter of 2014, leasing activity surpassed four million square feet in every quarter and even eclipsed five million square feet five times. Slow leasing has pushed total vacancy up for last 14 consecutive quarters, now at 24.5 percent, according to real estate firm Jones Lang LaSalle.

The NAI Partners Sublease Index -- measured by the amount of sublease space as a percentage of total available space -- increased 100 basis points to 15.3 percent in June. Space being marketed for sublease now represents 9.3 million square feet of the 61.2 million-square-foot total availability figure.

The bulk of the increase is due to Occidental Petroleum placing close to 814,000 square feet of sublease space on the market at 5 Greenway Plaza (746,070 square feet) and 3 Greenway Plaza (67,525 square feet) this month.

The silvering lining is that with a development pipeline currently at just under 1.5 million square feet, three million square feet below the market’s long-term average, Houston’s supply side remains a relative non-factor. This year is on course to be the market’s lightest year in terms of new development since 2010 with only 176,000 square feet of new deliveries year-to-date and only 503,000 square feet expected to deliver this year in total.

Rising oil prices and high-profile ground breakings have Houstonians optimistic, but despite a few early signs of improving market conditions, like flattening concession packages and strong performance in select submarkets, such as the Galleria, the Houston office market has a long way to go before there is a balance between supply and demand.

Kyle Hagerty, Houston Reporter  CoStar Group   
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