Vacancies Down, Rents Up in Houston

According to a report released from Studley, citywide office vacancy during the previous quarter dropped to 16%, a decrease from the 20.3% reported during Q3 2005. A report on the market issued by Grubb & Ellis is similar, showing a 16.08% vacancy overall, out of a one-billion-sf inventory.

On the rental side, the Studley report pointing to an area-wide average of $18.32 per sf. The Grubb & Ellis report clocks in at a somewhat higher rate of $19.56 per sf.

Though most might assume that the Katy Freeway area, known as the Energy Corridor, is where the action is taking place, Steve Biegel, senior vice president with Studley's Houston office points out that energy is impacting all submarkets, from Westchase, to the Galleria, to the CBD rather than out west. "Don't read too much into the fact we call it the 'Energy Corridor,'" Biegel says. "You have it elsewhere too."

He tells GlobeSt.com that vacancy, occupancy and rental rates are directly tied into the price of crude, though the early part of the decade demonstrated what he called a 'disconnect.' "Commodity prices went up, but the increase didn't correspond to the hiring going on, so we didn't see an increase coming out of the energy industry," he explains.

But statistics and anecdotal information show the lull has caught up. As an owner's market comes into being, tenants have to readjust. "If tenants are in a position to make a decision because an expansion or expiration is coming up, they'd better be prepared to move quickly," Biegel comments. "If they're not prepared, that space could be leased out from under them."

The owner market needs some preparation as well, according Ronnie Martin, senior director of leasing with Hines Interests. "It's the opportunity to do some good from the landlord side. While you don't want to become deal-unfriendly, it's a good idea to be aware that the market is improving," he tells GlobeSt.com.

Biegel indicates nothing much will change in the near future, as long as the economy continues its surge and energy is on its current demand. "If the economy does continue to grow, we'll have to believe that space will be harder to come by," he says.