11 Quick Office Submarkets Forecasts

Houston's office market is reeling from the price of oil, but as Houstonians known, the greater Houston area is defined by its submarkets more than any other major metro. Recently, Stream Realty compiled its forecasts for the 11 most significant office markets in Houston. Here's a quick take on each.  

Central Business District 

The CBD has reached a turning point; aside from the delivery of 609 Main and the potential downsizing of a few companies that entered Chapter 11, all known major movements this year are already reflected in the numbers. Although sublease availability will compete with select deals in the market, expect rates and concessions to hold steady in Class-A. 

Galleria/Uptown

Expect a continued flight to quality in the area, whether that be lateral moves by tenants to renovated projects or to new Class-A deals. Tenants who have a good understanding of where their core business is going over the next five to 10 years will be able to ink very attractive deals in today's market, Stream says, as many landlords look to backfill large blocks of space with little large-tenant demand. The well-diversified submarket will continue to see strong small-tenant demand relative to the rest of Houston. 

The Energy Corridor 

Negative absorption, new buildings delivering, increasing sublease inventory and limited demand will continue to have a negative influence on the submarket's fundamentals. Owners with vacancy will aggressively compete for the few deals in the market, putting pressure on rates and leasing concessions. 

Greenway Plaza 

Greenway has been one of the best-performing submarkets historically, and Stream predicts it'll continue to perform well due to local tenant demand and proximity to decision-makers. Concession packages will start to increase in new construction to compete for top tenants, especially as the 300k SF of product still in the pipeline tops out. But with stable demand from small to midsized tenants, look for continued strong fundamentals in the submarket. 

Memorial City 

Flight to quality will continue in this submarket as the buildings that recently delivered still contain substantial vacancy. Tenants that may not have been able to afford new top-of-the-line buildings when they broke ground will now be able to sign leases with substantially more concession via tenant improvement allowances and free rent. The only building under construction is the 240k SF facility developed by MetroNational on the north side of I-10, presenting tenants with a value-office alternative. If no other leasing occurs within the building, the submarket will experience a 100 bps increase in total vacancy. Until then, expect rental rates to remain steady while concessions increase. 

Sugar Land

Sugar Land is expected to continue to outperform the greater Houston market, as it is the tightest market in both direct and sublease space. Although one Class-A full floor became available this quarter, expect it to be absorbed quickly, as this market has proven recent demand for Class-A office product. Moving into Q3, Stream forecasts steady rates and concessions packages. 

The Woodlands 

With several landlords absorbing large blocks in Q2, look for rental rates to remain flat in Q3 with increases in concessions to make larger deals. Expect vacancy, which has reached its highest levels since Q4 2011, to remain stagnant as there are no new developments delivering till Q4. 

Westchase

Don't look for much change in Westchase this quarter. Landlords will continue to be focused on maintaining occupancy rates. Tenants will continue to hold off on making lease decisions till absolutely necessary. If oil prices continue to increase (they seem to at least have hit bottom), look for more activity in Westchase the remainder of the year. 

Northwest

The Northwest submarket could turn out to be a bright spot, Stream predicts. It should continue to see demand from large tenants looking to be close to the population density in Northwest Houston. As such, anticipate that several larges leases will be inked in the submarket during 2016 and will help chip away at the new product that sits vacant. 

Inner Loop

Despite the higher-than-historical Class-A vacancy, the submarket's strong fundamentals will continue to protect it from Houston macroeconomics. In the long term, the submarket's prime location will encourage sufficient demand to keep up with both new and existing supply. 

North Belt

Moving into Q3, anticipate further increases in the overall vacancy rate in the North Belt. There have been no signs that the energy markets will fully rebound in 2016. The foreclosure of the Greenspoint Place campus could end up being a positive for the area as a new owner, with a very attractive basis, can attract tenants looking to move out of lower-quality surrounding office buildings into the nicest product in the submarket.