CBD is Healthy but the Burbs Drives 2011 Absorption
Houston’s office market has undergone significant changes in the past twelve months benefiting from positive absorption, falling vacancy, and rising rental rates. Increased leasing activity particularly in key suburban submarkets has been the primary driver to the year-end positive net absorption figure of 2.6 million square feet citywide.
On a year-over-year basis the city-wide vacancy rate decreased by 50 basis points to 15.5% from 16.0%.The suburban vacancy rate decreased 130 basis points to 15.3% from 16.2%, and the CBD vacancy rate increased 170 basis points to 16.6% from 14.9%.
Vacancy in CBD Class A properties decreased to 14.3% from 15.1% between quarters, while CBD Class B vacancy rates decreased to 18.0% from 19.5%. Although suburban vacancy rates remained in double-digits, Class A vacancy actually dropped between quarters to 14.4% from 15.0%.
The CBD Class A average quoted rental rate increased by $0.68 to $35.29 per square foot from $34.61 on a year-over-year basis, while the suburban Class A average rate increased $0.23 to $27.34 per square foot from $27.11 over the past 12 months.
The Energy Corridor and The Woodlands Shine
The Central Business District finished the year strong recording roughly half its total net absorption for the year in the fourth quarter. However, The Katy Freeway (Energy Corridor) and The Woodlands were the hot submarkets accounting for 51% of the total citywide net absorption figure for 2011.
Leasing activity was also fairly strong in the Greenway, Westchase and Northwest submarkets and while some submarkets posted negative net absorption for the year, the increased vacancy was minimal. As expected the submarket that faired the worst was the NASA/Clear Lake area which suffered from major job losses associated with the end of the shuttle program and reduced funding for the space program. However, given the number of the job losses the impact on the office space market was less severe than expected.
Houston Net Absorption by Submarket (All Classes)
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