Houston Office MarketView Q3 2017
- Harvey’s impact was limited primarily to residential damage, as only about 50 tracked office assets reported being impacted by the storm, representing .5% of market’s net rentable area.
- The negative employment impacts of the storm are forecasted to be minimal and no quarterly losses expected to be reported this year—a post-storm bump is expected early next year.
- The Houston office market continued to post overall negative net absorption for the sixth straight quarter, with -418,746 sq. ft. absorbed in Q3 2017 and -2,325,026 sq. ft. YTD.
- However, negative net absorption in the office market has been trending toward a demand balance, as leasing activity has risen in 2017 and negative net absorption appears to be on the decline.
- Overall vacancy rose by 20 basis points (bps) to 17.6%, while availability fell modestly as sublease terms continue to expire.
- Development has continued to slow, with no new projects breaking ground this quarter: 2.2 million sq. ft. still remains under construction.
- Robust CBD tenant demand this quarter represented a large portion of leasing activity.
- Diverging demand is showing a clearer pattern where tenants favor recently built or renovated Class A product throughout greater Houston; however, Class B leasing was well represented in Q3 2017.
- Despite healthy leasing this year, direct vacant square footage is expected to continue to rise in the near term as sublease terms expire and convert to direct availability.