Houston Sublease Inventory Decreases for First Time in Two Years

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Dec. 21, 2016

sublease inventoryAfter growing by a net of 3.5 million square feet in 2016, Houston’s sublease inventory recently decreased by 5 percent following an uptick in leasing activity and ConocoPhillips’ decision to relocate their headquarters to Energy Center IV.

The fourth quarter of 2016 has seen four multi-floor subleases signed, a significant amount considering only three multi-floor subleases were signed in all three of the previous quarters.

Overall, 2016 has seen a much higher volume of subleases being leased than the previous year. In total, 251 subleases have absorbed approximately 2 million square feet. Fifty-three of those subleases have been more than 10,000 square feet and 23 were above 20,000 square feet. In comparison, only 148 subleases were signed in Houston in 2015 and only 16 of those were more than 20,000 square feet.

While sublease leasing activity is improving, there is still a long way to go. Houston has 11.8 million square feet of sublease space available. Furthermore, the sublease glut will not remedy in the near future. About a third of the sublease inventory has five or more years of term remaining.

Moreover, mergers and acquisitions, and space contractions and consolidations will likely continue to impact Houston’s office market as Houston’s battered oil and gas industry continues to cope with the prolonged downturn. It comes as no surprise energy and energy related companies account for all 20 of Houston’s 20 largest subleases. Though the mood is optimistic given OPEC’s recent decision to cut production, more sublease space may arrive to the market in 2017, upholding tenant-favorable conditions for the foreseeable future.

While the industry recovers, spec construction will remain on hold due to weak demand. However, if the perception is Houston has ‘hit bottom’ the market may see more tenants get off the sidelines and sign for long-term deals in 2017.

Houston energy tenant give-back not only comprises the overwhelming majority of sublease inventory in the city but across the U.S. In fact, Houston’s energy submarkets, specifically the Katy Freeway West, CBD and Westchase submarkets, are home to more sublease space than all other U.S. submarkets.

Click here to view JLL’s most recent Houston Office Sublease report.

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