Similar to other major metros across the country, Texas’s biggest cities witnessed a significant disruption in office use during the pandemic. But now that we’re halfway into 2021, the trend should finally be reversing, right? While Texas cities are growing in population at a much faster rate than other major metros across the country, the alarming downtown office vacancies witnessed at the peak of the pandemic are still stubbornly hanging on — or in some cases, getting worse.
According to recent office market reports from NAI Partners, we have a look at the latest vacancy figures for three of the biggest markets in Texas: Austin, Houston and San Antonio.
Texas’s biggest city led the nation in overall office vacancy towards the end of 2020 at a staggering 25.5%, and the glut continued well through the first half of 2021. There was a slight improvement in the first quarter of the year with the overall office vacancy rate in Houston dropping to 23.9% in February. However, trend appears to be heading back in the wrong direction as the most recent office vacancy rate stood at 24.7% for May, according to an NAI Partners report.
Leasing activity is also way down compared to the same time last year. There was just 4.469 million square feet of leasing activity between January and May 2021, compared to 9.857 million square feet during the same period of 2020, or roughly half as much volume. Absorption and deliveries are also way down, indicating that the office situation in Houston may not see any dramatic improvements anytime soon.
While Houston’s office vacancy continues to hover around a quarter of its supply, the situation in Austin is slightly better, though still not exactly strong. According to NAI Partners numbers, the total office vacancy in Austin as of May 2021 stood at 15.4%, up from 10.2% during the same period a year prior. New office product continues to be wrapped up as developers have delivered another 2.287 million square feet of office space to the city this year so far.
Leasing activity is not as lopsided as what has been happening in Houston, however, as Austin continues to draw interest from both established and emerging tech businesses. Between January and May 2021, the city witnessed 2.189 square feet of leasing activity while there was 2.809 square feet of office space leased during the same period in 2020. Net absorption is down and the gross average asking rent has remained stagnant over the last year.
Of Texas’s five biggest cities, the office vacancy in San Antonio is the lowest, though this doesn’t mean that the office market is outperforming those in other large Texas markets. As of May 2021, the overall office vacancy for San Antonio was 11% — not so bad when comparing to Houston’s nearly 25%. However, when comparing to the 10.1% from the same period a year prior, it doesn’t necessarily suggest that the situation is improving.
When we look at other indicators, the health of the San Antonio office market does appear to be in a slump. Leasing activity is down significantly, however. Between January and May 2021, the city saw nearly 885,000 square feet of office leases take place. The year prior? A solid 2.725 million square feet of office leases. While office leases are down in a big way, product deliveries have more or less remained unchanged between the first half of 2021 versus the first half of 2020.