Over the last two quarters, Houston’s office market has shown signs of a slow recovery from the energy downturn, but it hit a speed bump in Q2. During the quarter, the market posted negative net absorption of 842,200 SF, a substantial reversal from the positive absorption of 492,000 SF recorded in Q1. The newest trend of vacating older spaces for modern/creative, efficient interior designs has tenants effectively leasing less space without reducing head count. Unless the tenant is in an expansion mode, this trend will lead to a reduction in the amount of office space leased. Leasing activity has trended down in the first half of 2019. The majority of the leasing activity is a result of horizontal movement (existing tenants in the market relocating). Houston’s overall vacancy rate rose from 19.1% to 19.8% over the quarter and is still well above Houston’s pre-downturn average vacancy rate in 2014 of 11.6%. An additional constraint to recovery is a very tight labor market, not just in Houston, but nationally. Companies wanting to increase head count and expand are finding it difficult to fill the available job openings. Given these conditions, Colliers estimates, in the most optimistic scenario, it will take six to seven years of steady absorption to reach a pre-recession vacancy rate.

Houston’s overall vacancy rate rose from 19.1% to 19.8% over the quarter, and construction activity declined as several buildings delivered during Q2. With only 2.1M SF under construction, developers continue to... to read the full report, click here.

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