“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
 |
 |
|
 |
 |
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
Historic Comparison
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
