Lease concessions plateau having peaked in Houston’s soft office market

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April 4, 2018

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

lease concessions

Sluggish tenant demand to start the year meant more of the same for Houston’s office market in all but one respect: lease concessions. Following years of growth, lease concessions, such as free rent and tenant improvement allowances, are leveling off. Meaning concessions for tenants are about as high as they will ever be.

Twelve to 15 months of free rent on a 10-year deal is not uncommon for Class A space as well as tenant improvement allowances of more than $50 per square foot.

While the leveling off of concessions signals a forthcoming rebalancing of the office market, other fundamentals speak to the long road ahead for the oversupply of office space in Houston.

Weak tenant demand pushed total office vacancy to 23.8 percent in the first quarter, as the market recorded negative net absorption to the tune of 1.3 million square feet.

One submarket, however, shined amid the weary office market. The Galleria bucked broader office market trends with regards to vacancy, net absorption and rental rates. The submarket’s total vacancy decreased from 21 percent in Q4 2017 to 20.3 percent in Q1 2018. Moreover, the Galleria recorded approximately 139,000 square feet of positive net absorption in the first quarter. Asking rents in the submarket reversed course and increased from $35.52 at the end of last year to $36.30 in Q1 2018.

Looking forward, Houston’s office market will remain firmly tenant favorable throughout 2018.

View our full Q1 2018 office market report here.

Read more about our office report in the Houston Business Journal

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, Ronnie 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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