Three Things to Know about Houston’s Sublease Market

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Sept. 22, 2016

By: Eli Gilbert, Vice President of Research, JLL Houston

Sublease space continues to inundate the Houston office market. Leasing demand has been unable to keep pace with supply, pushing Houston’s office availability to 26.6 percent at mid-year. This means, market-wide, one in every four floors of office space is available. Tenant-favorable conditions are expected to persist through 2017 and will continue to manifest as decreasing rents, increased flexibility in lease terms and expanded lease concessions. Here’s what you need to know about the Houston office sublease market right now:

CBD, Energy Corridor lead in sublease space availability

sublease market

Houston’s office market now has 11.9 million square feet of sublease space available. The largest blocks of sublease space continue to be found in the Energy Corridor and CBD. Other prominent office submarkets, such as the Galleria and Greenspoint, are also home to a significant amount of sublease space.

Sublease space in top submarkets is more than double the average inventory

sublease market

Sublease space is coming to the market five times faster than it is being leased. Approximately 587,000 square feet of sublease space is coming online each month. 191 subleases have been signed this year, however it’s mainly smaller tenants taking advantage of the existing options. Only 12 subleases of more than 20,000 square feet have been signed in 2016. Even more, only 3 multi-floor subleases have been signed year-to-date. The average size of subleases in 2016 has been just 6,213 square feet.

More than 5 million square feet of sublease inventory is here for the long term

sublease market

Only two percent of current sublease space will revert back to direct basis by year-end, meaning the excess supply of office space will not remedy in the short term. Furthermore, additional sublease space is expected to arrive to market as energy companies contract further and M&A activity continues. Houston’s sublease market may grow to 13 million square feet by 2017. Looking forward, additional deliveries combined with space contractions may push vacancy over 20 percent market-wide.

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

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Eli-Gilbert-newAbout the Author

As JLL Houston’s Vice President and Director of Research, Eli Gilbert leads a team of five staff researchers in developing best-in-class research deliverables. He has more than 15 years of commercial real estate and research experience and is a LEED certified professional.

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