Q3 2020 | Houston Office | Research and Forecast Report

Rezul News/10485935
Houston's office market posts negative absorption in Q3 2020, pushing the year-to-date total to over -2.8M SF

HOUSTON - Rezul -- Commentary by Patrick Duffy, MCR | President | Houston

The Houston Office Market continued to contract during the third quarter as the COVID-driven, government-mandated lockdowns continued. After experiencing negative absorption of 1.14 million square feet in the 2nd quarter, the 3rd quarter followed posting 1.33 million in negative absorption. We track absorption as the change in physically occupied space between the current quarter and the previous quarter. Negative absorption literally means that less office space was occupied vs. discussing an increase in vacant space, including new space delivery. In the 3rd quarter, Houston delivered 490,000 square feet of new product, pushing the year-to-date total of new inventory to 1.2 million square feet. Including the new product, vacancy, therefore, increased by 1.8 million square feet. The net result was to drive the vacancy rate up to 21.3% of the inventory we track. Obviously, not a positive trend for the Houston office market.

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Despite the increase in vacancy, asking lease rates stayed steady. However, the concession packages became slightly more aggressive in the last quarter, especially free rent and tenant improvement allowances. The landlord's theory seems to be "accelerate occupancy, but hold the line on the long-term rental income," which has historically been a sound strategy during perceived short-term economic downturns. Given the bounce back in GDP (up 35%) and employment (unemployment fell to 7.9% nationally and low 7's in Texas) during a still COVID restrained 3rd quarter, this strategy seems sound. As the COVID slowdown subsides and the global economy slowly restarts, expectations are that GDP will continue to recover at a relatively high rate in the next several quarters and that employment will continue to improve. All of this bodes well for the office market in the mid-term.

The move toward remote work, a clear threat to office occupancy, seems to have lost the shine we felt in the early parts of the lockdowns. Most corporate leadership consensus seems to have shifted from... To read the full report, click here: https://www2.colliers.com/en/Research/Houston/Q3-2020-Houston-Office

Lisa Bridges | Director of Market Research

Source: Colliers International | Houston
Filed Under: Real Estate

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