Investors look to Houston despite continued slowdown

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Oct. 2, 2017

By: Ronnie Deyo, executive vice president and office team lead, JLL Houston

total vacancyDespite Hurricane Harvey’s widespread devastation, Houston’s office properties fared relatively well, with less than 60 office buildings reporting damage from the storm. As a result, the office market, by-and-large, stayed its course through the close of the third quarter. Total vacancy increased, sublease space decreased, and investor interest returned with vigor.

Total office vacancy increased to 22.8 percent as leasing activity failed to surpass its ten-year quarterly average for the seventh consecutive quarter. Overabundance of available space, coupled with stalled organic growth from tenants is keeping the office market from a meaningful recovery. Only four leases over 20,000 square feet involved a tenant expanding their space, while 16 leases (>20,000 square feet) involved tenants who maintained their current footprints. The market’s average deal during the quarter was just 4,700 square feet.

Thankfully, tenants continue to chip away at Houston’s record sublease inventory. Spurred on by NRG’s 431,000-square-foot sublease deal at One Shell Plaza, strong subleasing activity during the third quarter helped to reduce sublease inventory for the fourth consecutive quarter. Houston’s office sublease inventory now sits at 10.4 million square feet, down from its record high of 12.2 million square feet.

Even with the office market lagging, investors have re-entered Houston. Led by multiple large portfolio transactions, office sales are up more than 430 percent from 2016. Houston’s total year-to-date sales volume is approximately $1.47 billion. By year-end, total transaction volume for 2017 could reach $2.5 billion. Deals in the market have been extremely competitive and well-located quality assets are seeing significant tour activity and numerous offers.

CLICK HERE for our full Q3 office market insight and statistics.

About the Author

Ronnie Deyo is an Executive Vice President/International Director at JLL, where he serves as the leader of JLL Houston’s Office Tenant Representation group. During his 30-year career in commercial real estate, Mr. Deyo has represented some of the most recognizable corporations including AON, KPMG, Morgan Stanley and The Williams Companies. Connect with Ronnie on LinkedIn.

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