Office Space Construction on the Rise in Houston

CityCentre III Artist Rendering

CityCentre III Artist Rendering

Houston’s commercial real estate market is on the rise thanks to the city’s soaring economy, giving way to several new office and industrial leasing projects breaking ground over the past year. In turn, commercial construction continues to boost the city’s economy by providing jobs and adding to the overall job growth.

According to data gathered by Commercial Gateway, a division of the Houston Association of REALTORS®, Houston’s office market ended the fourth quarter of 2012 with a total of 1.1 million square feet of positive net absorption, creating a total of 3.6 million square feet of office space throughout the city for the entire year. Q4 of 2012 was the seventh consecutive quarter of positive absorption for office space construction. Class B office space construction in Houston during 2012 was also very positive with 1.3 million square feet of absorption, which equals 29.9% of the total office market in the city. Class A office space ended the year with 2.1 million square feet absorbed, which represents 58.7% of the city’s total.

There are also six submarkets that recorded positive absorption of more than 300,000 square feet during 2012, led by the energy corridor at 875,000-plus square feet. These submarkets equated to 62.8% of the city’s total absorption for the year, with CityCentre III and Nexen Tower accounting for 342,000 square feet of absorption and FMC Technologies making up 162,000 square feet at the firm’s Beltway Lakes’ new headquarters.

Other noteworthy commercial construction projects that are underway include 21 office projects that have been announced or are currently underway, totaling 4.5 million square feet, such as Anadarko’s Tower II, the largest project at 549,000-plus square feet, and Energy Tower III, a 450,000-plus spec property. Of these 21 new projects, 10 of them are totally leased out and 51.4% of the square footage in the buildings that are under construction is preleased.

The west side of the city has eight buildings under construction that total 1.9 million square feet of office space and The Woodlands boasts eight construction projects of its own that equal 1.5 million square feet. Scheduled to break ground this summer is Noble Energy’s 456,000 square-foot office building, located in north Houston.

Vacancy rates have also shifted significantly in the past year from 13.4% to 11.8% year-over-year. A strong leasing market is a reflection of Houston’s growth and an indicator of long-term occupancy by expanding firms. Many projects in the submarkets in the north and west parts of the city were preleased prior to the buildings ever breaking ground. Over the past five quarters, sublease office space has dropped significantly to 1.6 million square feet from the 2.5 million square feet in Q4 2011.

Image license: Creative Commons (view source)

 

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