Houston is facing turbulent times as its office leasing market stumbles to its lowest point in nearly a decade.
The Houston office leasing market saw a significant downturn in the third quarter, with transaction volume for leases of 10,000 square feet or more reaching the lowest level since 2016, Bisnow reported, citing CBRE.
Net absorption during the quarter fell sharply to negative 773,000 square feet, although the situation was somewhat mitigated by the removal of the 1.2 million-square-foot former Marathon Oil Tower from the inventory.
The 41-story tower at 5555 San Felipe Street, is off the market as its owner, Starwood Property Trust, considers options for residential conversion or sale. Marathon Oil occupied 60 percent of the space until its relocation in 2021. Starwood foreclosed on the property the following year, taking ownership from Houston-based M-M Properties.
Eastdil Secured is marketing that 1983 office tower for sale and expecting offers ranging between $35 million and $82 million, a drastic decline from the $176.5 million ($147 per square foot) it fetched in 2018. Despite the tower’s removal from the stats, the Houston office market is still struggling.
The third-quarter drop in net absorption can be attributed to Irving-based engineering and construction company Fluor’s recent move from its Sugar Land campus to the Energy Corridor, which downsized its footprint by 70 percent.
Fluor occupies nearly 413,000 square feet in Granite Properties’ Eldridge office complex, which “showcases the appeal of the newly renovated space and top-notch amenities,” said Ariel Guerrero, an insight leader for Avison Young.
Demand is strong for Class-A properties. Hines’ 1.2 million-square-foot Texas Tower at 845 Texas Avenue, for example, was delivered in 2021 and is nearly 97 percent leased. Fayez Sarofim & Company recently leased 61,000 square feet in the building.
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International Workplace Group secured Houston’s largest lease in the third quarter, with 66,000 square feet at the Jones on Main, at 712 Main Street. The firm took over space formerly held by WeWork.
“Though Houston’s office market has seen sustained weakness post-Covid, this quarter’s dip in larger deals is likely not a warning sign of a ‘new normal’ but rather a symptom of the ‘wait-and-see’ approach several tenants are dealing with today due to the election and other macroeconomic and global concerns,” said Eli Gilbert, CBRE’s business intelligence director.
— Andrew Terrell