Houston’s office market exited 2023 with a whimper.
Leasing activity dropped significantly in the fourth quarter, hitting a five-year low, Bisnow reported.
Activity plummeted 35 percent between the third and fourth quarter, according to Savills. Houston’s overall leasing volume decreased 12 percent year-over-year, a trend attributed partially to natural fluctuations in the office market.
A “flight to capital” trend further explained the decrease in leasing volume, as occupiers grew cautious of landlord finances, due to worries around office loan defaults and tenant improvement obligations.
This trend has resulted in protracted negotiations and heightened scrutiny of landlords’ financial health, Savills research manager Deandre Prescott told the outlet.
Available sublease space in the fourth quarter decreased to 5.5 million square feet, from 8.1 million square feet a year earlier. Despite the year-over-year reduction, availability remained relatively high compared to previous quarters in 2023.
Houston ranked fifth in CMBS office delinquencies among the country’s 10 largest metropolitan statistical areas, with a 13.4 percent delinquency rate, according to Trepp.
Asking rents are a silver lining. They increased an average of 6.8 percent year-over-year. Class A offices outpaced others with a 7.2 percent increase in asking rents, as companies continue to focus on amenity-filled office space. Despite the rise in asking rents, net effective rents are anticipated to be lower, factoring in extended free rent periods and substantial construction allowances offered by landlords.
New leases represented half of the 10 largest leases in the fourth quarter, while relocations accounted for 10 percent.
Law firm Clifford Chance leased a 60,000 square feet in Texas Tower, at 845 Texas Street, which was the largest lease in the fourth quarter.
Other notable leases in 2023 included Fluor’s 308,000-square-foot lease at Three Eldridge Place, after leaving its long-time Sugar Land headquarters. LyondellBasell Industries also relocated with a 319,000 lease at 2800 Post Oak Boulevard in the Galleria’s Williams Tower.
—Brandon Sams
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