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Commercial
Texas

Company Relocations disrupting Houston’s office space market

The days of H-town’s tenant-dominated market might be numbered

(iStock)
(iStock)

Thanks to an avalanche of relocations, the Bayou City’s office market seems to be bounding back to pre-pandemic levels.

Houston’s office market experienced an uptick in net absorption during the first quarter of 2022 — the first one since before March 2020, according to the Houston Business Journal. Reports analyzed by the Journal revealed that The Woodlands, the Westchase area and the central business district led the Houston area.

The opening of new-to-Houston Healthstore Holdings’ 125,384-square-foot office in Millennium Tower marked the end of eight quarters of negative absorption in Westchase.

The city’s office market absorbed a net of 22,343 square feet citywide in the first quarter of 2022, according to JLL. One of the most notable moves was Hewlett Packard selling its old 66-acre campus to an up-and-coming liquor distributor, Mexcor.

Though leasing volume remains below pre-pandemic levels, overall office space demand in March increased more than 11 percent year over year, according to JLL. But even with the uptick in demand, landlords are still pushing aggressive concession packages, including rental abatement and generous tenant improvement allowances.

“Although the office market remains heavily tenant favorable, key indicators such as positive net absorption and upticks in leasing activity and office-demand-driving jobs reflect that the sector is headed toward recovery,” JLL said.

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The wave of relocations helped push direct vacancy levels down by 70 basis points to 24.9 percent. One of the biggest relocations of Q1 was Canadian natural gas company, Enbridge. In March, the company inked a massive, 9-floor sublease in Houston’s Energy Corridor.

Sublease availability remains elevated at 7.7 million square feet — just below the pandemic peak of 8 million square feet — says D.C.-based investor Madison Marquette.

In Houston, 85 percent of companies have employees who are returning to their offices or who are planning to do so, the Wall Street Journal reported. Though experts say office occupancy is set to hit a ceiling due to hybrid work models, which has left many commercial real estate firms unsure about the future.

Houston’s office development pipeline currently has nearly 820,000 square feet underway, says Houston-based CRE firm Transwestern. The largest project is Skanska USA’s 28-story 1550 on the Green tower near Discovery Green downtown.

[HBJ] — Maddy Sperling

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