July 21, 2016
By: Eli Gilbert, Vice President of Research, JLL Houston
Houston office market – sublease space and activity overview
Houston’s sublease inventory has more than doubled since the fourth quarter of 2014, and with an average of about 580,000 square feet of sublease space coming to the Houston office market each month, the glut will not remedy in the short term. Here’s what you need to know about the Houston office sublease market right now:
1. There is now 11.7 million square feet of sublease space available.
The largest blocks of sublease space continue to be located in Houston’s CBD, Energy Corridor, Galleria and Greenspoint submarkets. The Energy Corridor (Katy Freeway & Westchase) alone has more than 4.5 million square feet of sublease space. Additionally, more than 5 million square feet of sublease space is here for the long run, with five or more years of term remaining.
2. On average, 580,000 square feet of sublease space is coming online monthly.
The velocity of subleases coming to market is not slowing. Currently, the sublease space in Houston’s top submarkets are more than double the average inventory of sublease space for Class A and B properties within those submarkets. Additionally, new deliveries have added pressure to vacancy rates. Although much of the 3.1 million square feet of new construction delivered thus far in 2016 was preleased, more than 1 million square feet delivered without preleasing commitments. Fortunately, developers have by and large tabled plans for future projects until preleasing requirements are achieved.
3. Subleases are not being absorbed.
Sublease space is coming to the market about five times faster than it’s being leased. While the market has seen 140 subleases signed in 2016, they have been small in size. The average size of subleases signed this year has been approximately 5,700 square feet, demonstrating smaller tenants are taking advantage of current options. Only one multi-floor sublease has been signed in 2016.
Tenants and landlords alike remain cautious in the face of ongoing market volatility and concern over oil prices. Looking forward, additional deliveries combined with space contractions may push vacancy over 20 percent market-wide. A tenant-favorable market will continue to manifest as decreasing rents, increased flexibility in lease terms and expanded lease concessions. Furthermore, spec construction will remain on hold while Houston’s market copes with the oversupply of space. Houston will remain tenant-favorable through 2017 but should return to a neutral market in 2018 given forecasted demand and the lack of new construction entering the pipeline.
To view JLL Houston’s latest sublease report, click here.
About the Author
As JLL Houston’s Vice President and Director of Research, Eli Gilbert leads a team of four 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.