Energy Companies Hiring, But Seeking Shorter, Flexible Office Leases

Energy tenants have begun to be active in Houston again, but it isn't bolstering the office market much yet.

Energy employment is up 2.7% year over year, a positive sign for Houston's office market. JLL's North America Energy Outlook found that 33.3% of tenants with active space requirements in Houston office are energy-related. That has allowed office landlords to curtail concession packages somewhat, but it isn't really pushing occupancy. That is partially because energy companies are taking shorter and much more flexible leases than the massive long-term deals they were signing about five years ago, JLL said.

More of these end users are moving into coworking, a segment that hasn't really taken off in Houston but is beginning to get some traction. Recent coworking announcements include a big expansion from Vibe Ventures near Hobby Airport and the inclusion of coworking in the Innovation Hub being built in the former Midtown Sears.

Energy companies have been the driving force behind Houston's excess of sublease space. Of the 9.5M SF of sublease availability, 76% is from energy-related tenants. That space is leasing at a 33.3% discount to asking rents, JLL reports. The surplus of sublease has been seen as a black mark on Houston's office market overall. On the positive side, one energy company took down some of another energy company's big sublease block this month, when Enable Midstream Partners subleased 48K SF in One Shell Plaza.

Energy has continued to be good news for industrial. Downstream companies are still booming, driving big activity in the Southeast submarket, which has 43% of Houston's industrial construction pipeline, according to JLL. And yet, only 4% of tenants with active space requirements in the Houston industrial market are energy-related.