Home Economics Houston Commercial Rents Plunge As Vacancies Hit 22-Year High

Houston Commercial Rents Plunge As Vacancies Hit 22-Year High

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There is seemingly no end to the growing problem of commercial real estate vacancies across the country.  And while we’ve spent a lot of time talking about the largest markets of New York and San Francisco, Houston, one of the hardest hit markets from the collapse of oil prices, is also in the midst of its own real estate collapse.  In fact, per a recent Q1 market update from NAI Partners, commercial vacancies in Houston have just reached a 22-year high.

Houston’s overall vacancy rate rose to 20.0% in Q1 2017, an increase of 100 basis points quarter-over-quarter and 260 basis points year-over-year. Net absorption stood at negative 778,758 sq. ft. as of the quarter’s end—on the heels of the more than 1.4 million sq. ft. of negative absorption for full-year 2016. In addition, both Houston citywide overall rent and leasing activity are down from last quarter, as well as from Q1 2016.

 

Meanwhile, the Houston market ended the first quarter of 2017 with negative 778,758 sq. ft. of net absorption after a brief recovery in early 2016.

 

And, after averaging just 3.3 million square feet in 2014 before the oil bust, the amount sublease space up for rent now stands at over 3x that level, or roughly 11.1 million square feet.

The overall availability rate, which measures the total amount of space being marketed for lease, rose to 25.7%, an increase of 70 basis points from the previous quarter’s 25.0%. Available sublease space has dipped from a peak of 12.0 million sq. ft. in Q3 2016 to 11.5 million sq. ft. at the end of 2016 and now settling at 11.1 million sq. ft. as of the first quarter of 2017. Before 2014, available sublease space in Houston had been averaging about 3.3 million sq. ft. Since the oil downturn began to manifest in the office market in 2014, available sublease space in Houston has more than tripled. With everything considered, the sublease market seems to have reached its bottom; however, there is more than 4.5 million sq. ft. of sublease space that will be returned to landlords in the form of direct space through 2019. The large sublease market is a critical element in regaining positive momentum and could be viewed as beneficial as the big blocks become more competitive.

 

All of which has, of course, pushed rents lower…

 

…but, as usual, has had minimal impact on the willingness of builders to continue adding new capacity, with roughly 2.0 million square feet of new real estate currently under construction, and about half of that space available for lease.

 

But we’re sure OPEC will save the day for Houston real estate developers any day now…



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