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Houston to experience negative office absorption in first quarter

By   –  Reporter, Houston Business Journal

Houston's commercial real estate sectors are in wildly different phases of market cycles, so slow office activity in 2018 should be counterbalanced by the boom times in industrial and retail, said Pat Duffy, president of the Houston office of Colliers International.

Duffy was speaking to hundreds of attendees of the firm's Houston 2018 Trends event at the Houston Country Club on Jan. 30. In outlining the firm's 2018 forecast, Duffy broke down the office sector. He said to expect negative absorption in the first quarter as large chunks of space from United Airlines and Shell Oil Co. become available in 600 Jefferson and One Shell Plaza, respectively. United will relocate to 609 Main and Shell is moving its downtown employees to campuses in west Houston.

"We're not going to see big movement for another 18 months," Duffy said.

True recovery will come when energy companies start taking large chunks of space again, he said.

"There just aren't enough law firms … that need 25 floors of an office building," Duffy said.

But Houston's energy companies may never return to being the giant office tenants they once were. Since the downturn began in 2014, energy companies have managed to do the same – or better – with less. For example, there are half the rigs in the Permain Basin as there were in 2014, yet production and output is on-par with prerecession levels, Duffy said. Lots of energy companies are bringing back jobs they cut during the downturn, but likely won't bring all those jobs back.

Still, some large office deals were executed by energy companies getting back into growth mode in 2017. In November, Saudi Aramco subleased 200,000 square feet in Two Allen Center and relocated from its 160,000-square-foot space in Bellaire. In the building next door, Motiva Enterprises LLC renewed and expanded its lease in One Allen Center to occupy 204,500 square feet. 

Those deals are also reflective of downtown landlords investing significant sums of capital to revitalize their properties. Brookfield recently wrapped up the first phase of its $48.5 million renovation to the Allen Center buildings in downtown.

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