Office Space Growth Barely Meets Demand in Houston

An empty office space ready for occupancy

Because of the employment rate increase, office space in Houston is in high demand.

According to the Bureau of Labor Statistics, employment in the Houston area rose by almost 98,000 in the 12 months leading up to July 2013. Naturally, this means that office space in the region is in hot demand, but the supply is relatively tight at this moment in time. Class-A vacancy is now less than 10% and as the employment rate in Houston continues to rise; this has the potential to cause a real problem. Fortunately, commercial real estate developers are quick on the draw, which means that Houston’s office market is looking good for the foreseeable future.

The Growth of Construction in Houston

Giant corporations such as BHP, Chevron, and Apache are once again showing that they are ahead of the game as they all have major office development plans. These companies, and others in the energy market, have decided to begin creating office buildings to prevent any future impediments to expansion. It is estimated that over 10 million square feet of office space is either already under construction or planned by the end of 2016.

During the third quarter of 2013, approximately 1.4 million square feet was added to the Houston office inventory and over 10 million square feet was currently under construction. Given the fact that the area’s unemployment rate has fallen to 6.1%, it is essential for these buildings to be developed, as national and international companies continue to flock to Houston. Even the respected commercial real estate company, Colliers International, believes that the economy of Houston is set for a very healthy future.

Demand

The new space that was delivered in the third quarter of 2013 was gobbled up as quickly as it became available with an estimated 715,000 square feet of positive net absorption during this period. Compare this to the same period in 2012 where less than 300,000 square feet of positive net absorption was recorded.

Some major tenants have moved into Houston during this period including Noble Energy which has moved into an office building of almost 500,000 square feet. Helix Energy Solutions leased 120,000 square feet, while TransCanada moved into an 180,000 square-feet building.

Availability

The citywide vacancy rate actually rose by 0.4% over the last 12 months, though the average CBD vacancy rate dropped by almost 1% during the same timeframe. The suburban vacancy rate rose by 0.5% solely because of the influx of new space. According to a detailed survey of Houston, there are over 1,300 existing office buildings but only 50 have more than 100,000 square feet of space available to lease. Only 21 have more than 200,000 square feet of space available, which proves that major companies are quickly getting their hands on office buildings.

It is also apparent that rental rates in Houston have risen over the last year, which the average citywide rate increasing by 2% in the last 12 months. The most in-demand Class-A buildings; however, have seen their rents increase by over 10%! Clearly, space is in big demand and short supply and while the upcoming projects will alleviate some of the problems, businesses interested in moving to Houston need to act fast in order to acquire space in the cities most desirable districts.

 

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