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Q4 2020 | Houston Office Market Report

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Houston’s office market continued to contract during the fourth quarter

Commentary by Patrick Duffy, MCR | President | Houston

 As you will see from our submarket analysis included in the PDF report, Houston is a vast market and the submarket matters. The Houston MSA is physically larger than nine states. From a population perspective, we are larger than over thirty states. This summary includes all of Houston as if it is a single, homogenous market – it is not. Even within submarkets, some office buildings have significant competitive advantages over others. Colliers believes that these quarterly reports, with the submarket data tables included, can give the reader a reasonable understanding of the market’s health and trends but will never replace a specific requirement analysis for granular understanding by a specific occupier/user. We hope you find this information helpful and welcome the opportunity to dive deeper with our clients.

The Houston Office Market continued to contract during the fourth quarter as the COVID-driven, government-mandated lockdowns continued. The fourth quarter ended with approximately 875,000 square feet of negative absorption following three consecutive negative quarters in 2020. For the year, occupancy went down approximately 3.9 million SF. We track absorption as the change in physically occupied space between the current quarter and the previous quarter. Negative absorption literally means that less office space was occupied vs. discussing an increase in vacant space, including new space delivery. Occupied office space dropped to 79% (21% vacant) of the total 238M square feet of space we track.


As we observed in Q3, despite the increase in vacancy, asking lease rates stayed steady. However, the concession packages became more aggressive in the last quarter, especially free rent and tenant improvement allowances. The landlord’s theory seems to be “accelerate occupancy, but hold the line on the long-term rental income,” which has historically been a sound strategy during perceived short-term economic downturns. Landlords continued to show flexibility for short-term renewals requested by their tenants, who did not have the confidence to extend for a typical 3 to 7-year term. Clarity on the work from home (WFH) approach mandated by many local governments and adopted by most large corporate users, and the long-term strategies aligned with WFH is still hard to come by. Most companies have reported that work is getting done. They can function more smoothly after a few months of practice with video conferencing and online collaboration tools.

Last quarter we reported that “Most corporate leadership consensus seems to have shifted from “it’s working surprisingly well” to “we do not see our normal productivity, collaboration and innovation that we had when we were all working in the same space.” Every seasoned office advisor knows that office space is not just a place to work – if that is all it is, then remote work would quickly replace it. Office environments are designed to attract talent, enhance collaboration and productivity, act as a cultural leverage point, and create environments where our employees’ intellectual capital is best deployed. If this is true, while remote work might get the in-box emptied, it does not provide for the rest of the package required to truly leverage our workforce’s talents. We see no change to that position at year-end.

The COVID vaccines started their roll-out in December. They should be widely distributed by the end of Q1 and potentially distributed/administered at a sufficient level by the end of Q2 to finally bring a level of “herd immunity” required for the lockdowns to be removed as a mandated counter-COVID approach. If this forecast holds, we expect office users to return to the office in large numbers in the 2nd half of 2021. Long term solutions for the need and configuration of space are being vetted as we write this. There are many theories ranging from massive structural changes to returning to a more pre-COVID approach. We tend to lean toward the latter outcome. Shortly after the 9/11 attacks, the talking heads were discussing the end of New York City as a major business hub and companies abandoning high rise office space. Obviously, that did not happen. In the middle of a storm, it is hard to predict long-term impacts. This storm is ending this year, hopefully in the first half.

Speculative office construction should be minimal in the next two years and all substantial new office construction will likely be tied to pre-leasing success. We have decades of available office space on the ground today, given historical absorption numbers. The migration of businesses from California and other less business friendly states, and a probable stabilization in the energy sector, will likely accelerate our recovery, but we have a very long way to go before we return to a balanced occupancy in the Houston MSA.

Historical Available Sublease Space


 Of the 1,680 existing office buildings in our survey, 92 buildings have 100,000 SF or more contiguous space available for lease or sublease. There are 26 options with 200,000 SF available for lease or sublease. Citywide, 6.6 million SF of sublease space is listed as available and 2.6 million SF of the space is vacant.

Absorption & Demand

 Houston’s office market posted negative net absorption of 836,140 SF in the fourth quarter, pushing the year-end 2020 total net absorption to negative 3.9M SF. There were just a handful of submarkets with positive absorption in Q4 including Katy Grand Parkway, Northwest, Southwest, The Woodlands and West Belt. Since tenants typically do not move into lease space immediately after signing a lease, absorption lags and can occur at anytime after. We believe absorption numbers will trail even longer than usual in the short-term due to the “stay-at-home” orders amid COVID-19, so absorption will more than likely remain negative moving into Q1 2021.

Rental Rates

 Houston’s average asking rental rate increased over the quarter from $30.33 per SF to $31.02 per SF. Houston’s average suburban rental rate rose from $27.47 per SF from $27.98 per SF and the average CBD asking rate increased from $40.00 per SF to $41.20 per SF. As stated in the commentary, rental rates have remained relatively flat; however, landlords have been more generous with concessions.

Leasing Activity

Houston’s office leasing activity decreased 4.5% over the quarter from 2.2M SF to 2.1M SF. Leasing activity includes new/direct, sublet, renewals, expansions in existing buildings, and pre-leasing in proposed buildings. Some of the more notable transactions that did occur in Q4 2020 are listed in the table below.

Sales Activity

Houston’s office investment sales volume increased over the quarter from $247 million in Q3 2020 to $330 million in Q4 2020. The average sales price per square foot dropped from $251 to $177 per SF annually and Houston’s average office cap rate increased from 7.0% to 7.4%, according to our data provider, Real Capital Analytics.

Office Development Pipeline

4.2 million SF of office space is under construction, and approximately 63% is pre-leased. 2.4 million SF is spec development, of which 57% is pre-leased. Below is a summary of the office buildings under construction with a GBA of 150,000 SF or greater.

Q4 2020 Houston Office Highlights



Q4 2020 | Houston Office Market Report

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Lisa Bridges

Director of Market Research


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



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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