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The NAI Partners Sublease Index—measured by the amount of sublease space as a percentage of total available space—registered at 14.0% near the end of November. Space currently being marketed for sublease represents 8.5 million sq. ft., compared to this time last month at 8.8 million sq. ft., a decrease of 3.8%. With the net change in available square feet at such a minimum, minor rate fluctuations up and down are not particularly significant. More meaningful is the 30.4% drop in sublease availability since the third quarter of 2016, when it reached its maximum of 12.2 million sq. ft. The current index continues to reflect the lowest measured rate since it was at 13.2% in Q1 2015—two quarters after the start of the oil downturn when the index registered at 9.3%. From this point forward, factors that will affect the movement of sublease space will include space being returned to the landlord through lease expirations, and tenants choosing to hang on to their space and removing sublease listings.
With a slowing supply pipeline and an improving labor market, the outlook for the office market continues to improve. Currently, there is 2.6 million sq. ft. under construction—a total that includes the upcoming completion of Capitol Tower in Houston’s CBD. The newest tenant at the 35-story, 781,000-sq.-ft. skyscraper is Waste Management, which will be relocating its headquarters in 2020. Waste Management has inked a deal for the largest lease in the tower, 284,000 sq. ft. across nine floors. In addition, the largest sublease signed in November was MidCoast inking a 61,689 sq. ft. deal in Hess Tower at 1501 McKinney, for the sixth and seventh floors. The amount of sublease space as a percentage of total available space in the CBD submarket also registered at 14.0% as of the third quarter 2018.
Director of Research
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