Gap in Direct and Sublease Asking Rents is First in 17 Years

Sublease asking rents tend to fluctuate more closely with actual market conditions than direct asking rents, says Holland.

HOUSTON—Houston’s office market undergoes cycles, whereby the supply and demand of office space increases, peaks, decreases and bottoms during a repeating seven-to-eight-year period of time. While key CRE metrics (i.e. vacancy) in those market cycles show that asking rents do not tend to fluctuate accordingly. This is largely because asking rents do not reflect free-market principles that manifest in realized leases, effective rents and concessions, according to NAI Partners’ Data Insights October 2016. In light of this, a good way to examine how meaningful information can be extracted from asking rent data will be helpful in guiding professionals in assessing changes in market rents, says the report. 

Landlords representing direct space rarely advertise asking rents that are at the bottom of the range they are willing to accept. For this reason, gross and base triple net asking rents for direct space have an upward trend, with little change during down markets. For example, direct asking rents of class-A space during the past two-year downturn in Houston show a change of only $1.21, whereas actual effective rents of closed deals are down $6 to $8 per square foot on average, NAI Partners illustrates.