Houston Office Market Reports
Total Page：16
File Type：pdf, Size：1020Kb
First Quarter 2020 / Office Market Report Houston Quick Stats Uncertainty looms over Houston’s office are reporting up to $2 per square foot (psf) 5.5 market as companies and their employees drops, and tenants will keep their competitive Msf of available sublease space, down from 6.7 msf in adapt to Harris County’s stay home, work advantage based on the amount of fourth quarter 2019 safe order. For the first time in history, the availability in the market. The flight-to-quality metro and cities across the nation have fewer factor – firms opting for office efficiency in people occupying their offices and are instead newer properties to attract top personnel – 16.8% working at home, teleconferencing and home contributes to the high availability rates in Direct vacancy in schooling their children. This unprecedented Houston’s office market certain segments. economic disruption coupled with the oil price war halted an already slowing economy Absorption & Demand 3.8 in the Energy Capital of the World, which Msf of office space was still recovering from the 2015 energy Activity slowed in the new year as overall under construction downturn. Flight-to-quality is still the norm, demand could not keep up with supply. with recent activity reflecting tenants attracted However, for the second consecutive quarter, 64,188 to the newer class A properties while the the Katy Freeway West/Energy Corridor Jobs created during the 12 older class A and B properties undergo major submarket recorded the highest positive months ending February 2020 renovations to stay competitive. net absorption of all sectors. The 267,882 square feet (sf) gained during the first The employment picture is evolving during quarter resulted in part from S&B Engineers the pandemic and stay-at-home policies. Up 3.9% and Construction’s move into its new space February 2020 unemployment until early March, local employment growth rate in Houston, down from had been steady, with the unemployment totaling 155,175 sf at 15150 Memorial. 4.1% in January 2020 rate at 3.9% and a gain of 64,188 jobs, a 2.2% Other notable occupancies in the metro increase year-over-year as of February 2020, during the first quarter include Alight according to the Texas Workforce Commission. Solutions’ 180,000-sf move to its new building Overall rental rates decreased marginally and Arena Energy’s 87,231-sf move to Lake during the first quarter, but class A rates Front North Building, both in The Woodlands. Partnership. Performance. avisonyoung.com Houston First Quarter 2020 / Office Market Report All overall classes lost the occupancy 7.2% last quarter. Total vacancy including Three buildings were completed race during first quarter but suburban sublease space is now at 18%, slightly during the first quarter, including Alight class A properties reported 124,310 sf up from last quarter and from year-over- Solutions’ move into its new 180,000- of positive absorption. Overall, class A year’s 17.2%. sf building at 8770 New Trails in The properties reported direct net absorption Woodlands, representing the largest losses of 241,649 sf while class B reported Direct availability citywide completed building for the quarter. Two a negative 442,432 sf; class C reported remained at 21.2% smaller 22,000-sf properties, one each a negative 11,395 sf. A negative 695,476 during first quarter. in the Southwest and NASA/Clear Lake sf was the total recorded as direct net Total availability, 16.8% submarkets, were fully leased upon absorption during the first quarter. including sublease DIRECT VACANCY completion. space, is now at RATE Leasing activity slowed in first quarter 23.5%, a marginal Asking Rates to 3.8 million square feet (msf), which decrease from last Overall average asking rates dropped to compares similarly to activity from last quarter and year-over-year. quarter but slightly less than the 4.2 msf $30.35 per square foot (psf) gross from recorded in first quarter 2019. With 21% Available sublease space dropped 18.3% last quarter’s $30.98 psf and from $30.76 of the total space leased, Occidental to 5.5 msf from 6.7 msf last quarter psf recorded year over year. Quoted Petroleum signed the largest and from the same amount year-over- asking rates were reported in the $29-to- lease of 807,586 sf for year. Sublease space represents about $30-psf range during the last five years and increased to more than $30 during space they previously 10% of the total 54.2 msf available. last year’s third quarter. Throughout the owned at 1201 124k sf Five submarkets account for 69% of all downturn, landlords have offered various Lake Robbins in SUBURBAN available sublease space with the CBD CLASS A concessions, including year-long rent the renamed The DIRECT offering 1.4 msf or 24.7% of the total and ABSORPTION abatements and allowances covering Woodlands Tower at the Katy Freeway West/Energy Corridor the full cost of tenant improvement The Waterway. Howard submarket with 893,025 sf available. Hughes purchased construction. the property in December last year, Construction Average asking rates for the different and Occidental leased back the entire submarkets range from a low of $16.31 psf building. The construction pipeline is expanding but remains limited to 21 buildings in the Southwest to $41.31 the CBD. The The Central Business District (CBD) totaling 3.8 msf under construction five suburban submarkets currently quoting reported the second largest lease: and 45% preleased. The Katy Freeway rates more than $30 include Katy Freeway Enterprise Products Partners renewed its East submarket currently has the most East ($36.65), the West Loop ($36.42), 512,845-sf space at 1100 Louisiana. Other properties underway with five buildings Greenway Plaza ($35.55), the Woodlands smaller CBD transactions include EDP totaling 1.4 msf; Marathon’s 440,000-sf ($34.94), and East Fort Bend/Sugar Renewables North America subleasing headquarters broke ground during first Land ($31.08). 92,523 sf in Hess Tower and Cheniere quarter with completion anticipated Class A rates fell to $35.56 Energy expanding its lease by 33,127 sf in December 2021. Marathon will psf from the previous in Pennzoil Place’s North Tower at 700 $30.35 be relocating from its long-time AVERAGE quarter’s $36.63 psf. CBD Milam. QUOTED RATE headquarters at 5555 San Felipe. properties are currently Vacancy & Availability quoting class A rates at The CBD represents about 33% of the $44.09 psf, also lower than total square footage with the largest The current direct vacancy rate of 16.8% last quarter's $46.04 and the $45.89 building, Texas Tower at 845 Texas is an increase from both the previous psf recorded a year ago. Average suburban Avenue. Hines’ 1.1-msf property is quarter and year-over-year’s 15.8%. Class class A rates are currently $32.29 psf, a slight currently 39% preleased and is scheduled A vacancy rates, also at 16.8%, increased increase from the last two quarters and a for completion in October 2021. DLA from 16.1% last quarter and 16.0% year- slight decrease from the $32.23-psf rate Piper USA just signed for 31,843 sf in the over-year. Class B vacancy rates increased recorded year-over-year. to 18.2% from 17.7% last quarter while new building, planning to relocate in class C rates average 6.6%, a drop from January 2022. Partnership. Performance. avisonyoung.com Asking Rates First-Quarter 2020 Highlights $32 Brokers were busy in The Woodlands deal at 9950 Woodloch, also renamed submarket during the first quarter, The Woodlands Towers at the Waterway. $31 claiming both the largest and third largest Occidental sold and will vacate its former leases signed and recording the highest building so its new owner, the Howard company absorption in the biggest Hughes Corporation, can both relocate $30 building completed. and consolidate employees in The Woodlands. The largest lease signed during first $29 quarter was Occidental Petroleum’s S&B Engineers & Constructors occupied 807,586 sf in The Woodlands Towers at 155,175 sf at 15150 Memorial in its new the Waterway at 1201 Lake Robbins Road. building in the Katy Freeway West/Energy $28 YE15 YE16 YE17 YE18 YE19 YTD20 Formerly Anadarko Allison Tower, the Corridor submarket, representing the building was sold to the Howard Hughes second largest absorption. The company Company in late 2019 by Occidental, who purchased the building in 2018 from Vacancy Rates then leased back the entire building it MetroNational Corporation. 20% once owned. Marathon Oil Corporation broke ground The highest absorption recorded on its new 440,000-sf headquarters in during first quarter also occurred in The the Katy Freeway East submarket during 15% Woodlands as Alight Solutions occupied first quarter. The company is expected to its new 180,000-sf property at 8770 New relocate in December 2021 from its long- Trails; this is also the biggest building in time headquarters at 5555 San Felipe in the metro completed during first quarter. the West Loop. 10% The third largest lease signed was Western Midstream Partner’s 133,948-sf 5% YE15 YE16 YE17 YE18 YE19 YTD20 Trends to Watch Net Absorption With its central location within the 6m U.S. and the Americas, Houston is an important office base. The Oil The WTI price of oil fell below $22 in late following are regional updates for March, suffering record-level lows due to the 4m key economic indicators. pandemic and an oil trade war. 2m 0 Employment Purchasing Employment grew 2.2%, creating The Purchasing Manager’s Index (PMI) registered -2m 64,188 jobs for the 12 months ending 50.2 in February 2020, down from 52.5 in YE15 YE16 YE17 YE18 YE19 YTD20 February 2020.