National Real Estate Investor published an article yesterday asking the question, “Why are office buildings in CBDs continuing to recover faster than suburban properties?”
Typically, when the office market begins to recover suburban submarkets recover sooner than their CBD counterparts. However, during the recent phase of economic recovery, the reverse has been true—CBD submarkets began recovering sooner with suburban submarkets following suit.
The premises behind the explanation from the authors, (Victor Calanog and Ryan Severino) economists for New York-based research firm Reis is the difference in post-recession hiring patterns between large and small firms. I should give the authors credit as they noted net absorption in suburban submarkets on aggregate level has begun to outpace net absorption in CBD submarkets, driven by a small number of industries in specific energy and tech-centric metro areas. Welcome to Houston!
The Houston Office Market
When the office market began to recover in 2010, Houston bucked the current trend as the suburban office market was the first recover. In other words, the Houston office market exhibited the historically normal trend in the recovery phase of the market cycle.
However over the past year, the recovery in the Houston office market has been remarkably balanced with brisk office leasing activy in the city’s core office submarkets, including the Central Business District. In fact, the argument could be made that Houston is now moving into the expansion phase of the market cycle. Currently the office market is experiencing somewhat of a construction boom as developers race to be the first to meet increasing demand for space in key submarkets.
Houston Office Market (All Classes)
Absorption, New Supply & Vacancy Rates
In terms of true suburban office markets, leasing activity has been particularly brisk in the Energy Corridor (Katy Freeway), The Woodlands and the Westchase District. The Galleria/West Loop and Greenway submarkets always perform well in an expanding local economy, but these submarkets while technically suburban, are components of the urban core.
The Central Business District the largest submarket (37.9 MSF) has recorded the most absorption over the past year at (905,000) square feet. More details are available in the current Houston Office Market Research Report.