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Q2 2021 | Houston Office Market Report

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“Our office market continues to struggle to move to positive absorption in most submarkets, but there is a 6 to 12 month lag from decision to expand and actual occupancy. Our conversations with clients suggest the momentum has improved.”
 
Patrick Duffy, MCR | President | Houston
 
Key Takeaways
  • Vacancy continues to increase
  • Absorption remains negative, but on a lesser extent than the previous quarter
  • Deliveries and construction pipeline increased over the quarter
  • Rental rates continue to drop

 2021_Q2_Office_Vacancy Rate_Net Absoprtion    2021_Q2_Office_Under Construction_Lease Rates     

Houston Highlights

Houston’s office market continues to post negative net absorption recording negative 474,700 square feet in Q2 2021, pushing the year-to-date total negative net absorption to 1,220,200 square feet. The vacancy rate rose over the quarter from 22.7% to 23.0%, a historical high. Houston’s office inventory increased slightly with 483,600 square feet of new inventory added in Q2. There is still 3.5 million SF of office space under construction and most of the new inventory which is 60% pre-leased is expected to deliver this year. 2.4 million square feet is spec development, of which 58% is pre-leased.

 

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Executive Summary
Commentary by Edward Edson, MCR, MBA | Principal

Oil prices are hitting seven-year highs; consumer confidence is jumping to the highest level since the pandemic started; Houston retail is making a solid comeback, and the industrial real estate market barely blinked during the pandemic, yet the office market seems to be a ship that doesn’t want to rise with the tide. Even though Houston, Austin and Dallas are leading the rest of the country in getting employees back to the office, roughly 50% staying at home is creating a drag on the turnaround.

Most office users continue to delay major real estate decisions because of their culture, their employee job descriptions, or their aversion to risk. Even though the reward of gathering a company’s leaders and employees together in one physical location is very real, it’s hard to quantify. This behavior is further perpetuated by landlords who accommodate the procrastination due to the relatively large supply of product in the market they must compete against.

An increasing number of office tenants are emerging from the fog with a clear vision of how they intend to use their space and how much of it they need, which is why there’s a steady stream of employees going back into the office (for some portion of the workweek), but that’s still not enough to materially impact the quarterly trends of the Houston office market.

The overall market remains fickle, with short bursts of activity, making it hard to imagine the second half of the year looking much different than the previous six months. High-quality, newer office buildings continue to benefit from the ongoing shift to quality.

 2021_Q2_Office_Kastle Systems Graph 
 

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Q2 2021 | Houston Office Market Report

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Related Experts

Lisa Bridges

Director of Market Research | Houston

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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Edward Edson

Principal | Houston

Houston

Edward Edson is an office leasing broker responsible for providing advisory and transaction services to emerging companies, as well as large corporate clients on a local, national and international level. Since joining Colliers 13 years ago, he has only focused on consulting with office tenants and developing innovative strategies for his clients in investment sales. Edward’s diverse experience includes relocation, renewal, expansion, and disposition needs. He is a committed advisor helping clients make real estate decisions that are aligned with their strategic, financial, and operational objectives.

Edward joined Colliers after his career with Hines Interests. While with Hines, Edward represented the owners of Bank of America Center’s 1.3 million SF and assisted with the nearly 2 million SF within One and Two Shell Plaza. Prior to his leasing assignments, Edward was responsible for property management within Hine’s 1100 Louisiana building’s 1.3 million SF and BMC’s state-of-the-art 1.5 million SF campus located in Houston’s Westchase market.

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