Houston’s Strong Job Growth Boosts Office Leasing Activity

by CoyDavidson on July 9, 2012

Houston downtown photo

Houston Office Market Report – Q2 2012

Houston’s strong job growth due the to rapid expansion in the energy sector has boosted office leasing during the first half of 2012. Houston’s office market posted 1.4 million SF of positive absorption in the second quarter, pushing the year-to-date total to 2.4 million SF. Increased demand for office space has reduced available inventory, leaving companies that are looking to expand or move into the market with very few options. Office developers have responded by announcing several new spec projects since last quarter.

In addition to the Exxon/Mobile North Houston campus, Anadarko’s second corporate tower in The Woodlands, and Phillips 66 announcement regarding their plans to build their headquarters in West Houston, Apache Corp. recently announced the purchase of 6.4 acres of Wulfe & Co.’s BLVD Place mixed-use development in the Galleria area.

Multi-tenant office developments recently announced include Energy Crossing II, a 245,000 SF Lincoln Property Co. development in West Houston which Atwood Oceanics preleased 82,000 SF. Other companies that have announced plans for new office developments include Stena Realty, Trammell Crow, Core Real Estate, Mac Haik, Skanska, and Stream Realty/Wile Interests, to name a few.

Citywide, overall vacancy levels remained relatively unchanged between quarters, increasing by only 10 basis points. The citywide average rental rate rose between quarters from $23.56 per SF to $23.66 per SF.

Vacancy & Availability

Overall vacancy rates increased by 10 basis points to 14.7% from 14.6% on a quarterly basis. The average suburban vacancy rate decreased by 20 basis points to 14.5% from 14.7% the previous quarter, while CBD vacancy increased by 130 basis points to 15.6% from 14.3%. On a year-over-year basis, the city-wide vacancy rate decreased by 120 basis points to 14.7% from 15.9%. The suburban vacancy rate decreased by 140 basis points to 14.5% from 15.9%, and the CBD vacancy rate decreased by 40 basis points to 15.6% from 16.0%.

The CBD Class A vacancy rate increased by 130 basis points to 12.6% from 11.3% between quarters, while the CBD Class B vacancy rate increased 170 basis points to 19.2% from 17.5%. The suburban Class A vacancy rate decreased by 10 basis points to 12.3% from 12.4% between quarters, while the suburban Class B vacancy rate decreased to 16.9% from 17.3%.
Citywide, a total of 37 office properties have a minimum of 100,000 SF available for occupancy within 18 months, including both direct and sublease space. Only 14 of these properties have over 200,000 SF available.

Absorption & Demand

Houston recorded positive net absorption of 1,370,080 SF in the second quarter, pushing the year-to-date absorption total to 2,444,573 SF. Contributing to the second quarter’s positive gain was suburban Class A space with a positive net absorption of 924,290 SF, followed by CBD Class A space with positive net absorption of 85,266 SF. Some of the larger tenants that moved into their space or expanded into additional space during the second quarter included Apache Corporation with 65,000 SF, Dynegy Inc. with 62,261 SF, WorleyParsons with 50,716 SF Rockwater Energy Solutions with 44,666 SF, National Oilwell Varco with 42,296 SF, and BP 40,537 SF.

Rental Rates

The average citywide rental rate rose between quarters to $23.66 from $23.56 per square foot. The CBD Class A average quoted rental rate increased to $36.80 from $36.42 per square foot, while the suburban Class A average quoted rental rate decreased to $27.81 from $28.86 per square foot.

The CBD Class B average quoted rental rate decreased slightly to $23.61 from $23.81 per square foot, while the suburban Class B average quoted rental rate decreased to $18.54 from $19.05 per square foot between quarters. On a year-over-year basis the citywide average quoted rental rate increased by 4.2% to $23.66 from $22.70 per square foot.

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