Office Availability Decreases in Houston CBD Amid Increasing Options
Occupiers are continuing to demand high-quality office space as evidenced by a total of 2.1 million square feet of class-A leasing activity in first quarter, accounting for 69.6% of all leasing for the quarter.
HOUSTON—The US energy market outlook is optimistic as the country is projected to become a net-exporter in 2020, resulting from an uptick in production paired with technological efficiencies stabilizing consumption. Indeed, oil shows signs of recovery as the maximum closing price for a barrel of West Texas Intermediate reached $59.09 during March 2019, a year-over-year decrease of 11.4%. In addition, strength in the economy bodes well for office demand as the Greater Houston area enjoyed 73,300 new jobs in 2018, representing an annual growth rate of 2.4%.
As a result, the flight to quality persists and class-A office leasing activity in Houston outpaces other markets. To be sure, occupiers are continuing to demand high-quality office space as evidenced by a total of 2.1 million square feet of class-A leasing activity in first quarter, accounting for 69.6% of all leasing for the quarter. Still, flight to quality will put some downward pressure on class-A availability, even more so as development activity tapers.
“The newest, most amenity rich and most expensive buildings, i.e. cost per square foot, are having the most success because of the impact that these buildings have on worker satisfaction, which leads to better retention and recruitment,” Mark O’Donnell, vice chairman, director, Southwest region lead of Savills tells GlobeSt.com.
The overall market-wide office availability is trending downward slightly, ending first quarter at 26.3%–a 100-basis-point decrease year-over-year, according to a first quarter 2019 Houston office market report by Savills. Although, the market continues to exhibit predominantly tenant-positive fundamentals. There are 18 buildings with blocks of contiguous space larger than 100,000 square feet available in the Central Business District submarket. Overall availability in the CBD has increased by 130 basis points year-over-year to 29.3%.
Notable tenants committing or recommitting to class-A space in the CBD include Hunton Andrews Kurth LLP (renewing 135,000 square feet at 600 Travis St.), Calpine (renewing 126,000 square feet at 717 Texas Ave.) and Direct Energy (relocating 105,578 square feet to Two Houston Center), says Savills.
With some tightening outside of the CBD, non-core availability rates have decreased more than 150 basis points year-over-year, settling at 25.6%. Options abound in Katy Freeway and Westchase submarkets where year-over-year, class-A availability in the Katy Freeway/Energy Corridor submarkets has decreased 740 basis points from 36.2% to 28.8%. Still, there are 10 buildings with contiguous options larger than 100,000 square feet.
The availability rate for all other classes in the Katy Freeway/Energy Corridor submarket increased 250 basis points year-over-year. Moreover, the Westchase submarket also recorded a generous increase in availability through first quarter, increasing 200 basis during the year to 33.3%, according to the Savills report.