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Q1 2021 | Houston Office Market Report

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It’s time to get back to the office. In-person collaboration produces energy that stimulates ideas.

“Decision time accelerates when everyone is together.”
 
Patrick Duffy, MCR | President | Houston
Key Takeaways

• Vacancy continues to increase
• Absorption remains negative, but the forecast looks brighter
• Deliveries and construction pipeline decrease
• Rental rates begin to decrease

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Houston Highlights

If you look at the glass half full, Houston saw a smaller amount of negative absorption in Q1 2021 than in Q4 2020; however, tenants still vacated 780,000 SF more than they occupied, pushing the vacancy rate from 21.9% to 22.3%. Houston’s office inventory increased slightly due only to resizing of buildings because there were no new deliveries in Q1. There is still 3.4 million SF of office space under construction expected to deliver this year, of which is approximately 63% is pre-leased. 2.4 million square feet is spec development, of which 57% is pre-leased. Fingers crossed, office developers will hold off on any proposed developments for the foreseeable future until Houston’s abundant variety of office space opportunities can be absorbed.

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Executive Summary
Commentary by Blake R. Virgilio, CCIM, SIOR | Vice President

The Houston Office Market continued to feel downward pressure from the pandemic and limited new leasing demand; however, there is now light at the end of the tunnel. Traffic on the highways has increased, social gatherings are more prevalent and major employers that have had employees WFH for 13 months are starting to implement their return to office plans, starting in May and running through the summer. A general rule of thumb regarding return to office plans has been the larger the company, the more conservative and delayed their return to the office will be. We’re now seeing even the city’s largest employers planning to have their employees back by August, given the current trajectory of COVID statistics and vaccinations in Texas. Tour activity has increased throughout Q1 due to an increased confidence in the business outlook and tenants not having the luxury to delay decision-making. Due to the continued abundance of supply, many office searches start with the criteria of “we want to only look at spaces that are move-in ready.” This has caused landlords to implement new spec-suite and flex suite programs, which will now be part of a landlord’s standard leasing program moving forward.

Concessions are still very high in the marketplace due to tenant-favored fundamentals and all-time high tenant improvement costs. This trend will continue until we see significant positive absorption. The current office market recovery will be different than past recoveries in that oil and gas may not be the predominant stalwart to drive employment growth and increased demand. Oil prices have stabilized at +/- $60/barrel, but there is a subdued positive outlook for future production and white-collar energy jobs. While WFH will have a place in many companies moving forward, the number of business leaders who expect their footprints to decrease because of WFH is significantly less than it was 12 months ago. Of the major industry types in Houston, engineering firms are the most aligned with a WFH strategy.

 

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Q1 2021 | Houston Office Market Report

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Related Experts

Lisa Bridges

Director of Market Research

Houston

Lisa joined Colliers in 2010 as Director of Market Research and has 37 years of commercial real estate experience. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually, including quarterly reports on Houston's retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials supporting the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to existing and potential clients.

Lisa serves on the Colliers Editorial Board, the Colliers U.S. Research Council, and is a recipient of the Colliers Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

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Patrick Duffy

President

Houston

Pat is the managing director of brokerage services in Houston for Colliers.  Pat has more than 37 years of experience in commercial real estate as a producing broker, educator, sales manager and managing broker. Pat relocated to Houston from Florida where he served as President of the Colliers offices in Tampa Bay, Orlando and Southwest Florida.

​Pat started his career as Director of Marketing for a real estate data base company where he spent three years interviewing top brokerage houses throughout the United States and assisted in their automation needs as a consultant and instructor.   As President of the Colliers Houston office, he has direct responsibility for recruiting, training and managing the sales and leasing teams, property management and business plan creation and coordination for the company.

Pat was responsible for building and organizing retail service delivery capabilities for Colliers worldwide as chairman of the Colliers Retail Specialty Group (96-2000, 2002-2013).  Pat is also a founding member of the Colliers Oil and Gas practice group.  Among his academic accomplishments, Pat wrote the capstone case study for the CCIM program's final course offering from 1986 - 1998.  The case study combined the marketing and financial concepts taught by CCIM to allow the students to apply the material to a simulated commercial property disposition.

He has been an instructor for NACORE’s (now CORENET) Intermediate Finance Course and was awarded the Top-Rated Faculty Certificate in 2000.  Pat has been quoted in national and regional publications including the Wall Street Journal, Dow Jones, Newsweek, Real Estate Forum, National Real Estate Investor, Globe Street and others.  He has been an expert panelist for NAIOP, Real Share, ICSC and many other real estate organizations.

Pat has served as a member (and Chairman) of the Colliers Managers Steering committee, the Board of Directors for Colliers USA and is the past Chairman of the Colliers USA Board of Advisors.  In 2003, Pat was awarded Colliers Manager of the Year.  In 2004, he was chosen by Colliers as the Tom Richardson Award recipient, an honor based on strength of character. In 2012, Pat was chosen as the recipient of the Colliers USA Pinnacle Award for service excellence.  Pat is the only person in Colliers to win all three of these awards.  He served as an instructor for Colliers University 2010-14.   In 2017 Pat was recognized as a “Best Boss” by Real Estate Forum magazine.

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