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The new product has performed very well and has approximately 10% less vacancy than the overall market. There are almost 4 million square feet of new office product in the near term pipeline that will add to our vacancy issues and keep the market landlord soft and tenant-friendly for quite some time. We expect that the Houston office market will continue to show weakness well into 2021 and will not recover to a balanced (12-15%) vacancy for many years.

If this is true, while remote work might get the in-box emptied, it does not provide for the rest of the package required to truly leverage our workforce’s talents. Office environments are designed to attract talent, enhance collaboration and productivity, act as a cultural leverage point, and create environments where our employees’ intellectual capital is best deployed. Most corporate leadership consensus seems to have shifted from “it’s working surprisingly well” to “we do not see our normal productivity, collaboration and innovation that we had when we were all working in the same space.” Every seasoned office advisor knows that office space is not just a place to work – if that is all it is, then remote work would quickly replace it. 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. All of this bodes well for the office market in the mid-term. 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. 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. 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.

However, the concession packages became slightly more aggressive in the last quarter, especially free rent and tenant improvement allowances. Obviously, not a positive trend for the Houston office market.ĭespite the increase in vacancy, asking lease rates stayed steady. The net result was to drive the vacancy rate up to 21.3% of the inventory we track. Including the new product, vacancy, therefore, increased by 1.8 million square feet. 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. discussing an increase in vacant space, including new space delivery. Negative absorption literally means that less office space was occupied vs. We track absorption as the change in physically occupied space between the current quarter and the previous quarter.

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. The Houston Office Market continued to contract during the third quarter as the COVID-driven, government-mandated lockdowns continued. Commentary by Patrick Duffy, MCR | President | Houston

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