More than half of move-outs seen in Energy Corridor; Downtown Houston faring better
JLL today released its 2019 Q2 Houston Office Insight Report, which shows nearly 700,000 square feet of occupancy losses were recorded market-wide during the period, and year-to-date net absorption is down at -206,725 square feet.
According to the report, last quarter, the Houston office market looked well-positioned to begin digging out of generationally-high vacancy. Three quarters of occupancy growth, a robust economy, and encouraging tenant activity brought some much-needed optimism back to the office market. The second-quarter proved this to be short-loved however, as vacancy increased following several significant move-outs, more than half of which were seen in the Energy Corridor.
“On the surface, key fundamentals in the Houston office market like vacancy and net absorption continue to demonstrate weakness,” said Eli Gilbert, JLL vice president and senior research director. “A more nuanced look shows the vast divide between performance in Class A space and the balance of the market as tenants continue a flight to newer space. A prime example – occupancy losses at mid-year were solely seen in the Class B inventory while Class A space recorded a net growth in occupants.”
The quarterly report also notes that the Downtown Houston market is trending better, with positive net absorption of 250,000 square feet. The market saw the delivery of Skanska’s newly-renamed Bank of America Tower, a 780,000 SF Class A project, which was delivered partially occupied by the namesake tenant, thereby reducing the impact of that project’s vacant space hitting the market.
Despite a jump in vacancy across Houston this quarter, a few positive indicators have emerged. JLL’s report points to leasing activity that surged by 27%, as several large tenants took down large available blocks in the market. In addition,a large number of tenants signed leases in the quarter and are actually expanding their footprint, which may lead to positive net absorption in quarters to come.
The office market outlook points to indicators that show vacancy may be on the rise in quarters to come, with the flight to new construction continuing and large tenants leaving significant holes in the inventory when new projects being built for them hit the market.
About JLL
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.ir.jll.com.
