The State of the Texas Office Market

by CoyDavidson on October 12, 2011

Texas Office Market Update – 3Q 2011

The fact that the Texas Economy has generally outperformed the broader National Economy both during and exiting the last recession has been well documented and the major office markets within the Lone Star State are benefiting from the strength of the business climate. The Houston area has added 65,600 nonfarm jobs over the last year which is the biggest raw gain by any of the country’s 100 largest metropolitan areas. The Dallas-Fort Worth area added 50,200 jobs over the same period ranking number 4 out of the 100 largest U.S. metros.

While the employment gains are not exactly robust, the fact that a significant portion of the job growth has occurred in office using employment has resulted in positive year-to-date net absorption of office space for all four of the largest Texas markets. Despite the improving market fundamentals there has yet to be any significant upward pressure on rental rates, but in most markets there is evidence that significant tenant concessions offered by building owners are generally continuing to dissipate.

Houston: The Houston Office Market posted 957,000 square feet of positive net absorption during the third quarter mainly due to the suburban sector. Year-to-date Houston has recorded 1,416,246 square feet of positive net absorption. Year-over-year vacancy rates decreased from 16.6% to 16.0% citywide. The overall average rental rate rose slightly between quarters to $22.93 from $22.70 per square foot in the second quarter. The average quoted asking rental rate for Class A office space in Houston’s CBD was $33.92 at the end of the third quarter 2011 and $24.11 for Class A space in the suburban markets.

Dallas: The Dallas Metropolitan Office market posted an overall vacancy rate of 16.7% for the third quarter of 2011 after posting a solid 1,096,901 square feet of positive net absorption for the period. Year-to-date the Dallas Area Office market has recorded 1,592,851 square feet of positive net absorption. The overall average rental rate ended the quarter at $19.11, an increase from the previous quarter. The average quoted asking rental rate for Class A office space in the Dallas CBD was $20.58 at the end of the third quarter 2011 and $20.52 for Class A space in the suburban markets.

Austin: The Austin Office market recorded 495,876 square feet of positive net absorption for the third quarter resulting in an overall vacancy rate of 12.9%. The overall average rental rate ended the third quarter at $24.76, a decrease from the previous quarter. The average quoted asking rental rate for Class A office space in Austin’s CBD was a healthy $33.92 at the end of the third quarter 2011 and $24.11 for Class A space in the suburban markets. Year-to-date the Austin Office market has recorded 911,044 square feet of positive net absorption.

San Antonio: The San Antonio Office market posted an overall vacancy rate of 10.7% for the third quarter of 2011 after posting 279,449 square feet of positive net absorption for the period. The overall average rental rate ended the quarter at $19.24, a decrease from the previous quarter. The average quoted asking rental rate for Class A office space in the smallish San Antonio CBD was $20.57 at the end of the third quarter 2011 and $22.44 in the more dominant Class A suburban markets. Year-to-date the San Antonio Office market has recorded 493,619 square feet of positive net absorption.

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