Will the NASA / Clear Lake Office Market Ever Recover?

by CoyDavidson on June 10, 2019

The Clear Lake Office Market Yearns for a Blast from the Past

Nestled approximately 18 miles southeast of Houston’s Central Business District (CBD) is the NASA / Clear Lake office submarket. Clear Lake is home to NASA’s Johnson Space Center and for me personally it’s home. The NASA / Clear Lake office market is relatively small (approximately 5.5 million square feet) compared to many of Houston’s more prominent office submarkets.

When I started my commercial real estate brokerage career way back in 1989, I cut my teeth learning the business in this market area and focused on the office sector for the first several years of my career. Despite its size, back in those days the NASA / Clear Lake Office Market was one of the better performing submarkets at a time when the overall Houston office market was still recovering from the energy bust of the mid 1980’s. Driven by the United States space exploration initiatives most notably the Shuttle and Space Station programs the submarket had several large office space occupiers with NASA contracts including Boeing, Lockheed Martin, United Space Alliance and others.

A Whole Lot of Nothing Going On

Today, the NASA / Clear Lake office submarket finds itself in a vastly different place. If you ask me to describe the area office market today, I would candidly tell you; “there is a whole lot of nothing going on.” You can count the number of office occupiers with more than 100,000 square feet of office space on one hand. The office vacancy rate in Clear Lake has languished above 20% for over five years now and currently sits at 22.9%, rents are stagnant, notable new construction is non-existent and net office space absorption has been negligible.

The End of the Space Shuttle Program

The fortune of the NASA / Clear Lake office market took a turn in the wrong direction when NASA’s space shuttle program came to an end and the Obama Administration took up occupancy in the White House. Prior to this about 45% of the occupied office space in the NASA / Clear Lake submarket was attributed to NASA contractors. Over a million square feet of office space more than 20% of the market previously occupied by NASA contractors was vacated. I predicted at the time it may take a long time for the NASA / Clear Lake Office Market to recover, which has proven to be true.

Clear Lake is Doing Great!

Despite the woes of the office market in Clear Lake the majority of real estate sectors in the area are flourishing. The housing market is solid, the retail market despite its challenges is expanding, the healthcare real estate market is vibrant and the industrial market on the periphery of Clear Lake in Pasadena and La Porte is booming.

So, if the economy is good in the Clear Lake area why does the office market continue to struggle? The three primary economic engines for the Clear Lake area are NASA, The Port of Houston and the Petrochemical Refining Industry located along the Houston Ship Channel.

The problem is that the petrochemical industry has never traditionally been a significant occupier of office space in the Clear Lake area despite major operations nearby and while the expansion of the Port of Houston is ongoing, it benefits the industrial market on Clear Lake’s periphery. The end result is there is no significant economic engine to drive demand for office space in the Clear Lake area and the area has struggled to add office space using employment.

Looking around the Clear Lake area the office inventory is showing its age as many of the buildings were built in late 70’s, 80’s or early 90’s. The last two significant office projects (<75,000 SF) constructed outside the Medical Office sector were built in 2008 and 2011. I don’t expect any developers to be announcing any significant new office projects with such little demand.

The Clear Lake area office market may very well be the market that is today for years to come unless it can attract a new industry to the area. There has been a push for Life Sciences which never took hold and with the Texas Medical Center’s New Research Campus starting next year, that seems unlikely. The Oil & Gas industry is firmly entrenched in West Houston,  Downtown and The Woodlands. The Clear Lake area office market best hope seems to lie in in the U.S government’s increased commitment to human space exploration, and that has yet to materialize.

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