Office market shows signs of improvement
Sublease space in the Houston area’s office market decreases for the first time in two years, real estate reports indicate
The glut of sublease space that has been dragging down the Houston office market has shrunk for the first time in two years, new reports reveal.
The glut of sublease space that’s been dragging down the Houston office market has shrunk for the first time in two years, reports show.
The improvement is in part a result of Conoco Phillips’ recent decision to move into a building in the Energy Corridor it previously had available for sublease, commercial real estate firm JLL said. That deal took an entire 22-story building off the market.
Yet Houston remains flooded with space that experts say will likely take years to fill.
“I don’t think we’re out of the
woods at all,” said Steve Burkett, an executive vice president in JLL’s tenant representation group.
Office tenants across Houston are trying to unload 11.6 million square feet of space, a nearly 5 percent decline from the third quarter, according to NAI Partners, which released a similar report noting the market’s slight improvement.
Still, sublease availability remains more than three times its historic average of 3.3 million square feet.
Downtown and the Energy Corridor combined have more than 5 million square feet of available sublease space.
Energy companies account for all of the 20 largest subleases.
An increase of empty space coincided with the fall in oil prices that began after longtime price enforcer OPEC said at the end of 2014 that it would not curtail production. OPEC recently changed its tune, vowing to cut production by 600,000 barrels.
Companies in the market for space have started taking advantage of low sublease rates, as landlords up the ante with free rent, tenant build-out allowances and flexible lease terms.
This year, nearly 2 million square feet of available space has been re-leased, up from 1.24 million square feet in 2015, JLL said.
In downtown’s Heritage Plaza, several tenants have signed leases for a total of 165,000 square feet that was on the sublease market.
Noble Energy had inherited the space after acquiring Rosetta Resources.
The tenants include a law firm, a liquid storage and transportation company, a small drilling contractor, and an upstream exploration and production company.
In a more unusual turn, Conoco Phillips recently announced plans to leave its longtime Energy Corridor campus and relocate into a new 600,000-squarefoot building nearby. The company had put that building on the sublease market but wasn’t able to re-lease it.
It is still assessing options for its existing 62-acre campus.
Burkett calls the recent improvement “progress” but said it doesn’t necessarily signal a trend.
“It’s a possibility for more space to come on the market,” he said. “There are still people in bankruptcy or having issues that may be giving back their space.”