Houston Office Development – Why Landlords Are in Charge

Small office building

Available office space is becoming scarce in Houston, as supply cannot keep up with demand.

As we come towards the end of 2013, it is clear that in the Houston commercial real estate market, landlords have the power. Simply put, there is an increased demand for office space which of course leads to rising rent as demand far outstrips supply. It is getting to the stage where new office developments and entirely new buildings are deemed necessary to cope with the slew of corporations looking to grab hold of the “golden ticket” that is Houston.

Rising Rent

This is always the sign of a thriving office leasing market, and research conducted by Reis Reports shows that commercial rent rates in Houston have increased to $21.48 per square foot, a rise of 0.6% over the quarter. At the moment, it is a case of higher rents, more tenant activity, and less space. Until all of this changes, it remains a market suited to landlords.

New Office Buildings

You might think that things will change once the new buildings that are under construction are completed. There are a host of new buildings slated to be finished from 2014-2016, though any changes to the market will not become apparent in the next 12 months, as tenants have already bought space ahead of time. In The Woodlands, new projects such as the new campus being built by Southwestern, Research Forest Lakeside, and Hughes Landing are all due for completion in 2014.

The BP Communications Tower is also set to be finalized next year, while Shell has a building to be completed in 2015. The Chevron campus should also be open by 2016. There is construction underway between Interstate 10 and Highway 6, while the Energy Corridor is likely to have 4.5 million square feet of space open by 2016. If you think this will change the ballgame, think again! The demand for office space in Houston is so strong that already, an estimated 50% of this space is gone.

The Importance of Location

Meeting office space demand will not be a problem for developers, but their main focus should be on securing a good location. When a development company has a good tract of land in a desirable location, ensuring measured growth and development is relatively easy. It is also a fact that the current US Government Shutdown has had an effect on the industry as many developers are biding their time before committing to any further projects.

Unfortunately, companies that have dealings with the Federal Government, regardless of whether they are seeking government permits, contracts, or small business loans, are being severely impacted by the shutdown of certain services and the limitation of others. The best case scenario is that planned construction projects will be delayed, while it is possible that certain companies will be unable to wait if the shutdown continues indefinitely.

Whatever else happens, landlords are in a very strong position because the office space leasing market is incredibly strong right now. Vacancy rates are low, demand is high and landlords love every minute of it as Houston goes from strength to strength.

 

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