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Encouraging signs towards recovery
Cautious optimism surrounding the Houston office market has continued during 2019, and improvements in the local economy have been embraced by the Energy Corridor submarket. While there is still a significant amount of new, vacant office space available, the return of discussions surrounding hiring within upstream operations in West Houston has been welcomed. Approximately one-third of energy jobs lost during the oil downturn have returned; however, questions remain about the sustainability of the energy industry recovery. The U.S. Energy Information Administration (EIA) reported that the closing spot price for a barrel of West Texas Intermediate (WTI) averaged $53.55 per barrel during the second week of October 2019, down $19.62 from the same period in 2018. The EIA forecasts an average WTI price of $54.43 a barrel for 2020, down 3.7% from the forecast issued in September.
Leading in leasing activity
When the oil downturn became evident in the office market in 2014 and pricing began to fall rapidly, demand for office space quickly corresponded. However, the submarket has recently experienced positive leasing momentum, with the Energy Corridor recording 561,000 sq. ft. of leasing activity during Q3 2019—the highest out of the top five submarkets in leasing activity in the Houston metro. In addition, during the third quarter, the Energy Corridor office market saw net occupancy gains, tallying 137,000 sq. ft. of positive absorption with direct space responsible for 42,000 sq. ft. of that total, and sublease space represented by 95,000 sq. ft. The submarket’s largest move-in so far this year occurred in July 2019, when Transocean began to occupy the entire 301,000 sq. ft. of Enclave Place at 1414 Enclave Parkway. In June 2019, The Cannon moved into its recently completed 120,000 sq. ft. of incubator and coworking space on a 32-acre campus at 1336 Brittmoore.
Average asking rates on the rise
The Energy Corridor submarket saw overall full-service average rates increase $1.55 per sq. ft. year-over-year to close Q3 2019 at $29.88 per sq. ft. Class A rates increased to $34.18 per sq. ft., up from Q3 2018’s $32.49, and Class B rates also increased from last year, up $1.25 to $22.85.
Director of Research
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