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Unpredictable Houston office market challenged due to the significant amount of availability.

AN ANALYSIS OF ACTIVITY DURING THE FIRST FOUR MONTHS OF THE YEAR—JULY 2022 COMPARED TO JULY 2022.

HOUSTON OFFICE VACANCY AT 25.4%

Seven months into 2022, overall vacancy is at 25.4%, up 80 basis points from last year’s 24.6%. Availability is 29.8%, up 70 basis points from July 2021 at 29.1%. The difference between this figure and the vacancy rate reflects expected future move-outs. The Houston office market has recorded 7.7 million sq. ft. of leasing activity comprised of both new leases and renewals, down slightly from this time last year at almost 8 million sq. ft. Net absorption (move-ins minus move-outs) is at a positive 541,000 sq. ft., up from a negative 1.9 million sq. ft. year-over-year. In addition, the amount of construction underway is at 2.3 million sq. ft., down 33% from last year.

POSITIVE NET ABSORPTION IN 2022

Year-to-date net absorption in the Houston office market is positive at 541,000 sq. ft. Large move-ins this year include Vinson & Elkins (211,995 sq. ft.) in the CBD; Hewlett Packard Enterprise in CityPlace 8 (220,000 sq. ft.) and CityPlace 10 (220,000 sq. ft.) for a combined 440,000 sq. ft. in The Woodlands; and Cadence Bank (82,215 sq. ft.) in the Post Oak Park submarket. The largest move-out was Vinson & Elkins, leaving 338,026 sq. ft. at 1001 Fannin St. in the CBD.

INTEREST RATES AND INFLATION

The Federal Reserve raised interest rates by three-quarters of a percentage point near the end of July—the fourth rate hike this year—to further slow the economy. The previous hikes have put pressure on housing, consumer demand, and business investment. The Fed’s main priority is to curb inflation, even if it temporarily brings a slowdown in the job market. There is a possibility for another rate hike of three-quarters of a percentage point in September. To what extent the Houston office market will be affected by the elevated inflation and rising interest rates is uncertain as recovery from the Covid 19 pandemic and hybrid work options persist.

 


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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