Houston Skyline reveals flight-to-quality despite anemic office market

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August 3, 2017

When it comes to premium office space it seems there’s always a market for it, even in an economic downturn. Despite consolidations, space give-backs and record sublease levels, Houston’s Skyline office buildings are still outperforming the market, commanding top dollar and capturing the lion’s share of leasing activity.

Houston skyline

By the numbers:

  • At 19.5 percent, Houston’s Skyline vacancy remains below the market-wide office vacancy of 22.4 percent.
  • Houston’s eight trophy buildings have captured 64 percent of deals larger than 20,000 square feet in 2017 despite comprising only 36 percent of the Skyline inventory.
  • Skyline buildings command rents that are on average 28.8 percent higher than non-Skyline Class A rents in the CBD.

Skyline rents fetch premium

Many tenants in the market are still seeking Trophy and Class A+ space, creating demand for the market’s highest-quality assets despite an ongoing supply glut. Asking rents in the Houston Skyline are on average $46.46 per square foot gross. This represents a 28.8 percent premium over non-Skyline Class A buildings in the CBD, which have an average asking rent of $36.07 per square foot gross. That premium jumps to 40.6 percent when comparing the average asking rents of Houston’s Skyline to the overall pool of non-Skyline Class A buildings across Houston.

Landlords renovate to appeal to tenants

Landlords understand trophy buildings don’t stay trophy buildings unless they are continuously upgraded to meet current standards for superior office space. As a result, the Houston Skyline is seeing a wave of renovation. Underutilized spaces from the last generation of office space are being transformed into collaborative, creative and co-working areas to meet the requirements of the next generation of tenants and the future of work.

Buyers look to re-enter the market

With well-capitalized owners and asking rents holding steady in Houston’s Skyline, a significant gap between bid and asking prices stymied investment activity throughout 2016. This spread, however, is beginning to tighten and transactions are happening again in Houston. Year-to-date, Houston has seen approximately $1.3 billion in total transaction volume. A significant improvement over 2016, which saw just $330 million in total sales volume for the entire year.

About the Skyline

JLL’s Skyline is an annual look at office space within some of the most sought-after buildings in 57 markets across North America. The interactive website features JLL’s exclusive market insights regarding office supply, demand, rents, leverage and investment. Get started exploring your Skyline here.

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