Softer office market likely
Even strong areas are likely to feel effects, observers say
Houston’s weakest office submarkets, those areas on the west and north sides of town that have seen sublease space pile up, will continue to slide through 2017. But as they do, markets with higher occupancies and very little sublease space may start to lose steam as well.
That’s because companies that occupy space in the fullest buildings with the strongest rents may be lured to markets with a lot more space to spare.
“There are going to be such great economic deals,” said Jon Silberman, managing partner with NAI Partners in Houston. In better performing markets like Uptown and Greenway Plaza, “landlords will have to be more competitive.”
Available office space across the Houston area, including sublease space, is at a 16-year high of nearly 20 percent, NAI’s first-quarter data show. That’s 11 percent over what it was a year ago.
Tenants signing new leases are getting months of free rent, free parking, increased build-out allow-
ances and even drops in rental rates, the company said.
Sublease space has grown to 9.3 million square feet, three times its historical average. The volume has not yet leveled off The question is how long is this all going to take to wash out? It’s not going to be a 12-, 24-month kind of fix. There’s no way,” Silberman said. “Particularly on the west side, it’s going to be a 3- to 5-year problem over there.”
The longer that it takes for the office market to recover, the more risk that landlords face.
While the market so far hasn’t seen a lot of distress, expiring subleases pose a potentially large problem.
“Whenthere’s a 100,000-square-foot (sublease) block in a building that’s 200,000 square feet and the other 50 percent is leased, when the sublease space rolls, that’s 50 percent of the income that goes away overnight,” said NAI partner Dan Boyles Jr. HOK’s new workspace
For years, the local offices of architecture firm HOKwereontwosprawl- ing floors of the Williams Tower in the Galleria area.
The footprint was so large that there were few impromptu employee interactions and collaborative moments that office designers say are necessary for a productive work environment.
“Wenever really collaborated unless it was a scheduled meeting,” Ron Bateman, HOKvice president, said on a recent tour of the company’s new offices in the Phoenix Tower at 3200 Southwest Freeway.
The space begins on the ninth floor, which is adjacent to the roof of the building’s parking garage, which about 10 years ago was converted into a green space with a nine-hole putting green.
Between 150 and 175 people work in HOK’s 35,000-square-foot space, which has room for 190 employees. Noone has a private office. Everyone works out in the open.
In the middle of the first floor, a staircase leads to a loft with additional workspaces, as well as conference rooms and a dining area.
There’s also a “model studio” with a 3-Dand laser printers for creating architectural models.
“It’s helped us win a lot of competitions,” Bateman said.