The office vacancy rate in the Houston market rose to 26.7% as of the end of the first quarter, according to the latest research from Colliers.
In its first quarter 2024 Houston Office Market Report, Colliers said that this vacancy rate remains on the rise, jumping 50 basis points from a rate of 26.2% in the fourth quarter of 2023.
The vacancy rate was also up from the first quarter of 2023. Back then, Houston’s office vacancy rate stood at 25.8%.
And that’s not the only sign that Houston’s office market continues to face challenges. Colliers also said that office leasing activity dropped to 2.3 million square feet in the first quarter of this year. That is down 17.3% from the fourth quarter of 2023.
Absorption numbers weren’t impressive, either. Colliers reported that Houston’s office market reported negative net absorption of 616,399 square feet during the first quarter. That’s a reversal from the fourth quarter of last year, when the Houston office market saw 563 million square feet of positive net absorption.
“As we progress into 2024, Houston’s overall office market continues to experience a soft leasing environment with Class-A product on the west side winning the majority of the activity,” said Danny Rice, president of Colliers Houston. “This post-pandemic trend continues as companies evaluate their offices amid evolving return-to-work policies to deliver locations closer to where employees live.”
New construction activity is down, too. According to Colliers’ report, the Houston office market had 214,400 square feet of new office construction underway during the first quarter. That is down from 601,000 square feet in the fourth quarter of last year and 969,200 square feet in the first quarter of 2023.
The average asking rent for office space did remain consistent, though, with Colliers reporting that this figure stood at $30.31 a square foot as of the end of the first quarter. That’s not much different from the average asking rent of $30.71 a square foot from one year earlier.
Houston’s Class-A average rental rate decreased to $35.64 a square foot from the previous quarter but did show a slight increase year-over year.
Leasing activity dropped 17.3% from the previous quarter to 2.3 million square feet. The Westchase submarket accounted for 14% of the first quarter’s office leasing total while three other submarkets, the West Loop, CBD and Katy Freeway West/Energy Corridor leased more than 200,00 square feet each, accounting for 47% of the total.
“Office-using employment that directly corelates to office space is gaining but not translating to office leasing activity,” Rice said. “Interest rates are still causing a slowdown on the investment side, both in sale numbers and lower pricing.”
This doesn’t mean that there wasn’t some office activity during the first quarter.
Skanska completed its 386,323-square-foot building, 1550 on the Green, in the Central Business District. The new property is 35% leased by law firm Norton Rose Fulbright, which is expected to move in by the third quarter of this year.
CityCentre Six, a proposed 308,000-square-foot office property in Katy Freeway East, will break ground during the second quarter. Construction is beginning after the project secured a lead tenant, Dow Chemical, which preleased about 75% of the building, or 229,658 square feet, in December of last year.
When it comes to leasing activity, tenants are still looking for quality space. Class-A properties accounted for 65.5% of the first quarter’s 2.3 million square feet of leasing activity, with totals down 17.3% from the previous quarter and 41.1% year-over year.
Of the quarter’s total leasing, 46% occurred in properties in west Houston, including three different buildings within the CityWest Place development in Westchase.
Noble Corporation topped the list in size, leasing 110,250 square feet at 2101 CityWest. Bechtel signed an expansion lease of 77,262 square feet at 2103 CityWest, and Enstor Gas leased 43,598 square feet at 2107 CityWest.
The space-exploration business is also providing a boost to Houston’s office market. Axiom Space, which recently opened a new headquarters building in the Houston Spaceport, also renewed a 63,716-square-foot space in Hercules II at 1290 Hercules in the NASA/Clear Lake submarket.
In addition, Texas A&M recently announced its plans to build a cutting-edge research and training facility next to NASA’s Johnson Space Center in the submarket.
