Houston Office Market Report – 3Q 2013

by CoyDavidson on October 19, 2013

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Houston’s Office Market Construction Pipeline Expands to 10.5M SF

Houston’s strong job growth, spurred by growth in the energy sector, continued to boost Houston’s office market in the third quarter. More than 1.4M SF was added to Houston’s office inventory and, at the close of Q3, 10.5M SF of new office development was under construction. Energy giants such as Chevron, Apache, BHP, and many others have announced plans to build new office buildings to accommodate growth. Approximately 9.9M SF of office space is either under construction (ExxonMobil, Shell and Anadarko) or planned over the next two to three years.

The citywide average rental rate increased 2.0% from $24.31 per SF to $24.80 per SF over the year and 1.5% from $24.43 per SF between quarters. However, rental rates in some of the top-performing Class A buildings increased by as much as 11.0% between quarters.

VACANCY & AVAILABILITY

Houston’s citywide vacancy rate rose 30 basis points between quarters and 40 basis points annually, increasing to 15.4% and 15.5%, respectively, from 15.1%. The average CBD vacancy rate decreased 90 basis points to 14.2% from 15.1%. Between quarters, the average suburban vacancy rate increased by 50 basis points to 15.7% from 15.2% due to the addition of new inventory.

Between quarters the CBD Class A vacancy rate decreased by 120 basis points to 10.8% from 12.0%. The CBD Class B vacancy rate remained at 18.9%. The suburban Class A vacancy rate increased by 80 basis points between quarters to 12.5% from 11.7%, and the suburban Class B vacancy rate increased by 40 basis points to 18.1% from 17.7%.

Of the 1,306 existing office buildings in our survey, only 50 have 100,000 SF of contiguous space available for lease or sublease. Further, only 21 have 200,000 SF of contiguous space available. Citywide, available sublease space totals 4.3 million SF or 2.5% of Houston’s total office inventory, but only 1.8 million SF of this sublease space is currently vacant.

ABSORPTION & DEMAND

Absorption increased in the third quarter as new space was delivered and tenants expanded. Houston’s office market posted 715,000 SF of positive net absorption in the third quarter, more than the 298,000 SF posted in the same quarter one year ago. Suburban Class B space posted the largest loss, with 391,818 SF of negative net absorption. Suburban Class A space posted the largest gain, with 846,497 SF of positive net absorption.

RENTAL  RATES

The average citywide rental rate increased 2.0% from $24.31 per SF to $24.80 per SF on an annual basis, and 1.5% from $24.43 per SF between quarters. The CBD Class A average quoted rental rate increased 0.4% from $37.04 per SF to $37.19 per SF between quarters, while the suburban Class A average quoted rental rate increased 3.4% from $28.82 per SF to $29.79 per SF. The average CBD Class B quoted rental rate increased 1.4% from $24.70 per SF to $25.04 per SF, while the average suburban Class B quoted rental rate increased 2.0% from $18.60 per SF to $18.97 per SF over the quarter.

You can download and view the full report here.

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