Greater Houston Region Continues Measured Office Market Recovery

HOUSTON-The region’s third quarter office activity shows a slow, but continued recovery, according to the latest market report by Grubb & Ellis Co. The latest count shows 450,478 sf was absorbed in the third quarter, marking the sixth consecutive gain for the city and taking the year-to-date total to 1.5 million sf.

Aiding the recovery was a 1.1 million sf drop in available sublease space and a construction holdback that kept deliveries at 114,429 sf for the quarter. It doesn’t mean, however, that the construction is grinding to a halt. To date this year, 969,412 sf has delivered, up from 368,218 sf in Q1. The bulk of the new space is spec projects, mostly in the Katy Freeway and Westchase corridors.

Overall vacancy is sitting at 17.9% in the near 154.8-million-sf inventory. That might still be considered high, but there is reason for optimism, says Ariel Guerrero, client services manager in Texas for Grubb & Ellis. “There’s still a lot of space out there that’s available,” he tells GlobeSt.com, “but in terms of vacancy, that’s the lowest figure we’ve seen in the past 2.5 years.”

The western and northern suburbs were the bright spots for the quarter. In the Katy Freeway submarket, 142,337 sf was filled, taking occupancy to 88%, while the Greenspoint submarket, now 84% occupied, had 183,779 sf leased in Q3. “In the Woodlands submarket, we’re sitting on about 5% percent vacancy for class A space,” Guerrero adds. “Within the Greenspoint area, class A once again is averaging between 5% and 8%.”

Guerrero blames continued layoffs and cutbacks as part of the reason for the more stagnant figures in the CBD, where it’s still bleeding red on the absorption barometer. The CBD and Galleria also account for 63% of the available sublease space in the class A category.

Guerrero predicts the fourth quarter could be more of the same, but there is short-term potential for vacancy to drop–due to the impact of businesses temporarily relocating from New Orleans in the aftermath of Hurricane Katrina. Guerrero’s preliminary guess is the impact could lower vacancy by one point.

Looking ahead, Guerrero predicts the year could end with two million sf of absorption marketwide. “I’m not saying this is a landlord’s market completely,” he says, “but we’re moving in the right direction. Overall, this is the best year I’ve seen since 2000.”