Jan. 4, 2017
A battered office market remained just that in the fourth quarter of 2016. Despite the first decrease in Houston’s office sublease inventory in two years, weak leasing activity and negative net absorption in the city’s largest submarkets all but ensured the overall office market would record its second consecutive year of negative net absorption. A first since 2002.
The fourth quarter decrease in sublease space, from 12.4 million square feet to 11.9 million square feet, was a welcome shift following eight consecutive quarters of expansion. Much of the decrease was attributed to ConocoPhillips’ decision to relocate their Houston headquarters to Energy Center IV, a 597,000 square foot building that was formerly available for sublease. The sublease inventory will likely continue to contract in 2017, but the shift has yet to signal a significant increase in demand.
Due in large part to a weak showing in leasing activity, the Houston office total vacancy rate has been steadily on the rise since the fourth quarter of 2014. Marketwide total vacancy reached 20.3 percent during the fourth quarter. This is the first time Houston’s total vacancy eclipsed 20 percent since the second quarter of 2004.
Total vacancy is even higher in Houston’s Energy Corridor. The submarket, which maintained an average total vacancy of 13.24 percent from 2009 to 2014, saw total vacancy climb to 25.5 percent.
With fourth quarter leasing approximately 54 percent below its 10-year quarterly average of 3.7 million square feet, Houston ended the year with just 9 million square feet in total leasing activity. In comparison, Houston’s leasing volume in 2014 topped 18.4 million square feet of office space.
Prominent submarkets accounted for the bulk of negative net absorption in 2016. With the exception of Greenway Plaza, net absorption among the top five largest submarkets in Houston severely lagged behind their respective five-year averages.
Houston’s office sector began 2016 at the mercy of macroeconomic conditions and largely finished it that way as well. Energy sector move-outs lay at the heart of the issue, as low oil prices drove many energy sector tenants to reduce their headcounts, place excess space on the sublease market and later vacate their space.
For more market data on Houston’s Office market, click the links below to download the full Q4 2016 office market report and statistics.