NAI Partners Indicates Office Sublease Space now 7.7 million sq. ft., Double the Historic Average, But Concentrated Largely in West Houston
Houston, Texas - June 18, 2015 - Data analyses by Dr. Nat Holland, Chief Research and Data Scientist of NAI Partners, indicate that, nearly a year after the beginning of the current decline in oil prices, sublease availability for Class A and B office space has topped 7.7 million square feet, an increase of 61% year-over-year. This represents more than double the historic average of 3.3 million square feet.
Typically, sublease availability for Class A and B space is about 9.2%. Currently, however, the increase in sublease availability to nearly 17% has reduced direct office space to 83% of the total market. Such pronounced rises in sublease availability can impact Houston’s office market both by increasing supply and by competing with direct availability offered by landlords.
Prior to 2015, sublease availability averaged 3.3 million square feet of rentable space, with 63% of that rentable building area accounted for by Class A space (versus 37% Class B space). Today, Class A sublease space of 5.4 million square feet accounts for 70.3% of the 7.7 million square feet, a statistically significant increase above the historic 63%. Not only is there a dramatic increase in the total amount of sublease availability from 3.3 to 7.7 million square feet, but that sublease space is ever more biased toward Class A space.
Importantly, the extensive sublease availability is not equally distributed across the various submarkets of Houston. Rather, 3.0 of the 7.7 million square feet are limited to one geographic area of West Houston, including Katy West, Katy East, and Westchase. That is, nearly 70% of sublease availability above the historic average is localized and not distributed throughout the Houston office market.
Dan Boyles, Partner of NAI Partners, points that in addition to office downsizing typical of past pullbacks in oil, large blocks are coming available due to consolidations into newly constructed buildings. These commitments to new buildings were made prior to the decline in oil prices. Regardless of the reason, the doubling of sublease availability over historic levels is likely to impact submarkets of West Houston where many of these larger blocks of space are concentrated.