Houston’s Office Market Struggles to Find its Footing
As the year kicked off, Houston’s office market still struggled with low activity and occupancy, according to CommercialEdge data. The construction pipeline as of the end of February was below the national development figure and behind many comparably sized markets. In terms of deliveries however, the metro outpaced all of its peers.
Sales activity was diminished, registering a nearly 75 percent drop from the same period last year. Consequently, prices per square foot also lagged other secondary markets.
Houston’s vacancy rate slightly decreased over 12 months, but remained one of the highest in the U.S., although a few significant leasing agreements occurred in the market. Meanwhile, a slight the metro’s coworking sector continued to perform well, in line with national trends.
Construction pipeline below U.S. rates
As of the end of February, there was nearly 2.6 million square feet of office space under construction in Huston across 19 projects and accounting for 0.9 percent of existing stock. The construction rate was below the 1.6 percent national figure and lagged most of its peer markets such as Atlanta (1.8 percent), Dallas (2 percent) and Austin (3.9 percent), but surpassed Phoenix (0.6 percent).
In terms of construction starts, only one property broke ground in 2024’s first two months. Local developer Midway commenced construction on the 320,000-square-foot CITYCENTER Six in west Houston. The project is part of a larger 2 million-square-foot development which features another five already existing office buildings, along with large residential and hospitality components.
Some 825,000 square feet of office space came online in Houston across six properties, accounting for 0.3 percent of existing stock. This represents a 42.4 percent year-over-year increase. Regarding sheer volume brought to market, Houston greatly outpaced all of its peers such as Austin (635,250 square feet), Dallas (100,000 square feet), Phoenix (35,587 square feet) and Nashville (32,000 square feet).
The largest property to come online in Houston during this period is 1550 on the Green, which Skanska completed in February. The Bjarke Ingels Group-designed building rises 28 stories and spans 375,000 square feet. International law firm Norton Rose Fulbright already signed a lease for six floors, and will occupy 32 percent of the space, becoming the property’s anchor tenant.
Houston’s office sales slow down
Year to date through February, five assets totaling 511,827 square feet changed hands in the Houston office market. These figures represent a drop from the same period in 2023, when nearly 4 million square feet had traded.
After the year’s first two months the price per square foot averaged $93.8. It was slightly above figures recorded in Dallas ($92.7), but considerably behind all other peer markets such as Atlanta ($140.2), Phoenix ($166.5), Nashville (200.9) and Austin ($542.8)
One of the largest transactions recorded in the metro during this period was HTZ Investments’ sale of The Westchester, a 117,261-square-foot office property. Madison Cos. purchased the asset with the help of a $22.9 million CMBS acquisition loan originated by Morgan Stanley. The building was 74 percent leased at the time of the transaction.
The vacancy rate in Houston’s office market clocked in at 24.4 percent as of February, down 30 basis points year-over-year, but remaining one of the largest in the U.S., second only to Detroit’s 31.3 percent. It was also well above the 17.9 percent national rate, as the metro fared worse than all of its peers including Austin (22.1 percent), Dallas (21.1 percent) and Nashville (16.5 percent).
Second highest U.S. vacancy rate
At the end of 2023, Agellan Commercial REIT also secured two leases totaling 66,000 square feet at the three-building Beltway 8 Corporate Center.
Tenants US Med-Equip and Keystone Advisors, committed to 34,000 and 32,000 square feet respectively. Angellan acquired the 362,452-square-foot property in 2013.
One of the largest recent leasing agreements in the Houston market was SouthWest Water Co. committing to 41,114 square feet for 15 years at The Minute Maid Building. Lionstone Investments owns the 185,000-square-foot property, which is part of the 32-acre mixed-use Sugar Land Town Square development.
Coworking on par with national figures
As of February, there were more than 4.1 million square feet of shared space in the Houston office market, accounting for 1.7 percent of total stock. This share of coworking space was on par with the national rate, as well as with other Texas markets such as Dallas – Fort Worth and Austin, but lower than secondary markets such as Atlanta (2 percent) and Nashville (2.7 percent).
The largest flexible space operator in Houston was Cubework with more than 1 million square feet in five locations. Other key players in the sector included Regus operating some 540,000 square feet across 32 properties, as well as Workstyle Flexible Space with a 450,510-square-foot footprint in 30 locations.
The post Houston’s Office Market Struggles to Find its Footing appeared first on Commercial Property Executive.
