Additional sublease space in Q1 pushes total available square feet back above 9.0M SF
After six straight quarters of negative net absorption, Houston’s office market posted positive net absorption in Q4 2017, a little glimmer of hope that Houston’s office market was finally starting to look up. The optimism was short-lived as several large companies vacated space during Q1 2018 due to layoffs and mergers, causing negative absorption. One of the companies, Technip, which announced its merger with FMC Technologies in 2017 had over 3,000 layoffs nationwide during Q1 and the company vacated over 375,000 SF of class A space in the Katy Freeway submarket.
Developers remain disciplined, only beginning new construction with a lead tenant in place. Currently, there are only four such projects under construction including Capital Tower in the Central Business District and three projects in North Houston within the CityPlace development.
According to the U.S. Bureau of Labor Statistics, the Houston MSA created 67,100 jobs (not seasonally adjusted) between February 2017 and February 2018, an annual growth rate of 2.2%, which is above the national average job growth rate of 1.6%.
Vacancy & Availability
Houston’s citywide vacancy rate increased 100 basis points from 19.1% to 20.1% over the quarter and rose 160 basis points from 18.5% in Q1 2017. Over the quarter, the average suburban vacancy rate increased 70 basis points from 19.0% to 19.7% and the average CBD vacancy rate increased 120 basis points from 20.8% to 22.0%.
The average Class A vacancy rate in the CBD increased 150 basis points over the quarter from 18.7% to 20.2%, and the average Class B vacancy rate in the CBD increased 40 basis points from 28.3% to 28.7%. The average suburban Class A vacancy rate increased 70 basis points from 22.2% to 22.9% between quarters, while the average suburban Class B vacancy rate rose 50 basis points from 16.4% to 16.9%.
Of the 1,709 existing office buildings in our survey, 84 buildings have 100,000 SF or more of contiguous space available for lease or sublease. Of these, 23 buildings have 200,000 SF or more of contiguous space available. Citywide, available sublease space increased over the quarter from 8.8 million SF to 9.0 million SF, or 3.8% of Houston’s total office inventory. Available space differs from vacant space in that it includes space that is currently being marketed for lease and may be occupied with a future availability date. In contrast, vacant space is truly vacant and is and may still be immediately available.
Q1 2018 Houston Office Highlights
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