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Q4 2021 | Houston Office Market Report

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2021_Q4_Office_Skyline_1536x1040

“The office market continues to struggle against the impacts of the COVID-19 pandemic and government regulations limiting back to workplace participation. The recent SCOTUS ruling against the OSHA vaccination mandate may provide some relief. The fourth quarter showed some life with nearly 200,000 SF of net positive absorption, but we expect 2022 to show little expansion in net occupied office product. High vacancies will continue to press landlord’s toward highly competitive offerings.”
 
Patrick Duffy, MCR | President | Houston
 

Key Takeaways

  • Houston office market records positive net absorption
  • Vacancy rates remain high
  • 2021 leasing activity down 26% from 2020
  • Tenant space improvement construction costs and time to complete increases
2021_Q4_Office_Vacancy Rate    2021_Q4_Office_Net Absorption
 2021_Q4_Office_Under Construction    2021_Q4_Office_Lease Rates
 

Houston Highlights

Houston’s office market posted positive net absorption in Q4 2021, recording 196,525 square feet, but ended the year reporting a total of 1.9 million square feet of negative net absorption. Houston’s overall average vacancy rate remained at 23.1% over the quarter and the average Class A vacancy rate dropped 10 basis points. Houston’s office inventory increased with 509,280 square feet of new inventory added in Q4. There is still 2.9 million SF of office space under construction and most of the new inventory is 55% pre-leased. Kastle Systems Workplace Office Occupancy Barometer places Houston in the number 2 spot just behind Austin for metros with the most tenant building card key swipes at 42.9%, up 19.3% in January from a month ago..

Market Indicators

2021_Q4_Office_Market Indicators 

Historic Comparison

2021_Q4_Office_Historic Comparison 

 

Market Fundamentals

2021_Q4_Office_Market Fundamentals 

The forecast in the graph above is based on a trailing four quarter average.

Executive Summary

Commentary by Sam Hansen | Principal

Almost two years in-

The term “new normal” wasn’t coined during the Pandemic, but it was routinely bantered around as we all waited to see how the situation was going to end (remember, it was only supposed to last a few weeks or months). Now 21 months in, new behaviors and actions are present, which may shed some light on the expression “new normal”. The term implies some standardized changes which can be followed to rectify or clarify situations and usher in life in a predictable way, (mask, social distancing, sanitizing). The world has undoubtedly adapted to and modified most aspects of daily routines to try and create some bastion of normalcy. As many permanent adaptations have shown to be elusive, some have taken root.

Businesses, schools and other institutions try to work within an ever changing set of rules and disseminated information, most have given up on a “new normal” and are content with “current normal.” For example, companies continue with a variety of flexible work programs, the ongoing consolidation of offices and locations, the reduction of commercial footprints and the right-sizing of work staff while focusing on retention of “essential” employees. As it pertains to commercial office real estate, there are no easy transactions during this period. Top line revenue has been impacted for most businesses, office vacancy is high and attracting new tenants has proven to be extremely challenging. However, Houston is no stranger to cycles. We have battled energy cycles regularly and understand how to adapt and move forward. In addition to traditional concessions (free rent, rate cuts, high TI packages), landlords may repurpose or reposition an asset. A retail big box may become storage space or an office building could convert to residential condo.

Houston has proven to be a survivor, as evidenced by Texas being the #1 U-Haul one-way drop-off location in the country. More people are coming to Houston without a Plan B in order to make a better life for themselves and their families. The good news for us is that the “current normal” has shown itself to be one of continued resilience and fortitude.

    

Construction Activity Delivery Timeline

100,000 SF or Greater

 2021_Q4_Office_Construction Activity Timeline

 

2021_Q2_Office_Submarket Map


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Q4 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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Sam Hansen

Principal

Houston

Sam Hansen joined Colliers in 2021 and specializes in office project leasing alongside his partner, Doug Pack. Sam has been involved with commercial real estate in Houston, primarily as an Office Landlord Leasing Agent, for more than two decades.

Sam joins Colliers after spending five years as a Principal in the same capacity at Avison Young. While at Avison Young, the duo leased more than 5 million square feet of office, flex and retail space throughout the Houston metropolitan area.

During his eight-year tenure as Senior Vice President with NAI Partners, Sam built a successful office portfolio of Class A and B office buildings. Sam also assisted NAI Partners in building a successful management platform totaling nearly 4.5 MSF of industrial, office and retail properties.

Prior to joining NAI Partners, Sam worked for Hines Interests for 12 years. As a Director of Leasing, he was solely responsible for approximately 5 million square feet of Class A, trophy, commercial office buildings including JPMorgan Chase Tower, Williams Tower, and Greenspoint Plaza—ExxonMobil’s World HQ for Upstream Development and Exploration. With Hines, Sam completed more than 156 significant office leasing transactions totaling over 1.85 million square feet and has represented building owners and negotiated leases on their behalf with top Fortune 100 companies including, but not limited to, ExxonMobil, Wachovia (regional headquarters), Citigroup, Verizon, Merrill Lynch, and Lehman Brothers. Sam has also completed transactions with other notable tenants such as Locke Lord, Breitburn Energy, CBRE and Williams.

Sam’s depth in real estate also extends to Operations which allows him to better understand and market an asset to prospects. Sam was one of the first agents in the U.S. to complete the Hines Advanced Technical Core program and was part of the pilot program to generate a standardized training program for Hines to deploy worldwide.

Sam’s past responsibilities maximize his odds for success in all property Classes and sizes. During his 20+ year career, Sam has proven himself to be a dynamic, multi-talented team member that offers the ability to provide value and creative solutions for property owners while meeting the requirements of asset managers and tenants alike.

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