No Demand, No Recovery: Houston Office Broker Says He Doesn't Expect A Rebound In The Next 2-3 Years

No one seems to be coming to save the Houston office market.

There is not enough demand to provide any imminent recovery to the industry, CBRE Senior Vice President Kevin Saxe said. He said he has half the number of big deal prospects that he did this time last year, despite Houston's increasing population and job growth. 

"Even though [the economic outlook for] Houston as a whole remains really positive, to think there is going to be a substantial recovery any time soon would be foolish," he said.

Houston's total availability, which includes direct and sublease space, was 22.4% for the first quarter of 2019, according to CBRE market research. Availability was marked at 13.7% in Q2 2014, the lowest point in 10 years, and has been increasing since in response to the oil downturn. 

Some submarkets posted even more sluggish numbers. Availability in Greenspoint was at 49.1% in Q1 2019, the Energy Corridor was 27.6%, Greenway Plaza was 27% and Westchase 27%, per CBRE research.  

For the companies in the market scouting out real estate, there is a strong desire for the trophy assets, a nod to a growing trend of a flight to quality in Houston, Saxe said. Trophy assets such as Skanska's Capital Tower are leasing up quickly but the 1980s-era office product is struggling.

The bulk of leasing activity — 87% of tenants — was in Class-A space in the first quarter, according to CBRE market research. Companies are focusing on recruitment and retention of the next generation and are conducting workplace studies to outline the needs and desires of their employees, Saxe said.  

"You got these jukebox type of buildings that are now trying to figure out what to do to compete with the new Class-A buildings, and that expands across all submarkets in Houston," Saxe said.

He doesn't expect a market shift in the next two to three years.

"The facts are the facts. We are staring at significant availability. The moves are happening laterally. We don't foresee any positive absorption this year."

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Here are five of the most recent significant leases of the first quarter, according to CBRE’s office market report: