Houston Office Market Report 3Q 2011

by CoyDavidson on September 30, 2011

Large Blocks of Class A Office Space Continues to Shrink in Popular Suburban Submarkets – Developers Respond to Demand

The Houston office space market posted 957,000 square feet of positive net absorption during the third quarter mainly due to the suburban office sector. Year-over-year vacancy rates decreased from 16.6% to 16.0%  in the citywide Houston office market. Rental rates for Houston office space rose slightly between quarters to $22.93 from $22.70 per square foot in the second quarter. Vacancy in CBD Class A office properties continued to rise, reaching 15.1% compared to 10.1% a year ago. In contrast, suburban vacancy for Class A office space decreased to 15.0% from 19.3% a year earlier. Although leasing activity decreased in the Houston office market between quarters, several large transactions did occur.

Macro factors driving the positive net absorption of office space ultimately ties back to job count. According to the Texas Labor Market Review, total nonagricultural employment in Texas lost -1,300 jobs in August, while at the local level, Houston’s MSA gained only 2,400 jobs. Texas and Houston’s annual employment grew by 2.6%, while U.S. employment grew at a slower rate of 1.0%. Although Texas and Houston saw little or no job growth in August, annual growth was more than twice that of the U.S.

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