Filling up the space
Financial perks help fill some of the space as office market looks for a stronger 2018
Subleases and financial perks played big roles in the local office market last year.
Houston companies picked up unwanted office space at a strong clip last year, and many were given loads of free rent and other financial perks for doing so.
Totaling 2.8 million square feet, sublease deals accounted for nearly one-fourth of all leasing activity in 2017, the highest share on record, commercial real estate firm JLL noted in a new report.
Yet the sublease boom wasn’t enough to lift the overall office market entirely out of the doldrums.
New supply weighed down the market, which ended the year with a 23.2 percent vacancy rate, up 2.9 percent from the end of 2016 and almost 10 percent since the end of 2014 when oil prices started dropping.
During the fourth quarter, 460,000 square feet of new space was completed, leaving landlords no choice but to offer prospective tenants concessions like free rent and cash to customize their space.
The largest sublease transaction last year was NRG Energy’s 431,000-squarefoot lease at One Shell Plaza downtown.
Shell had put a substantial portion of its namesake building at 910 Louisiana on the sublease market to consolidate offices in west Houston. Its lease downtown runs through the end of 2025.
Other big sublease deals last year included Motiva’s Allen Center lease for 193,000 square feet and Stewart Title’s 156,000-square-foot lease at Four Oaks Place.
Sublease inventory is still high, but it fell to 9.3 million square feet, down by more than 2.3 million square feet from 2016.
Looking ahead, a separate report from CBRE suggests a slight rebound this year. Yet caution prevails.
“Given healthy Texas and U.S. economic conditions ... Houston’s office market should begin 2018 on relative solid footing,” the company said in its fourth-quarter report. “However, expectations of flat energy employment could restrain any significant office sector leasing activity, moderating any major occupancy gains through the first half of the new year.”