Houston Office Leasing Hits 8-Year Low As Market Sheds 1M SF Of Inventory In Q3
Transaction volume for Houston office leases of 10K SF or more dipped to the lowest level recorded since 2016, CBRE reported in its third-quarter office market report.
Net absorption was negative 773K SF, but a surge in availability was averted due to a 1.2M SF building being removed from the inventory, the report states. The building formerly known as Marathon Oil Tower, at 5555 San Felipe St., is no longer marketing its 800K SF of vacant space as its owner discusses potential conversion or a sale.
Marathon Oil, which formerly occupied 60% of the building, moved out in 2021. Lender Starwood Property Trust foreclosed in 2022 and took ownership of the building from Houston-based M-M Properties.
Now, Eastdil Secured is marketing the building for sale and could receive offers as low as $35M or as much as $82M, according to one estimate. Either sales price would be a stark drop from the $176.5M it sold for in 2018.
While CBRE has removed 5555 San Felipe from its inventory, the report doesn’t show many other positive markers for the Houston office market last quarter. Net absorption fell deeply negative due to Fluor moving from its Sugar Land campus to the Energy Corridor, cutting its footprint by 70%, the report states.
The engineering and construction company’s new leases in Two Eldridge and Three Eldridge total 413K SF, CoStar News reported. The move is a major win for the Energy Corridor, said Ariel Guerrero, an insight leader for Avison Young.
“Fluor's significant relocation lease to Granite's Eldridge complex showcases the appeal of the newly renovated space and top-notch amenities,” Guerrero told CoStar. “This move brings not only a major industry leader to the area but also new jobs and increased economic activity.”
The Houston office market continues to show a clear preference for modern office spaces, with Class-A properties, especially new builds, dominating leasing activity, according to the CBRE report. Hines' Texas Tower is an example, as it will be 97% leased once pending deals are confirmed.
The largest Q3 lease came from coworking company International Workplace Group leasing 66K SF at the Jones on Main in Downtown Houston. The company filled seven floors previously occupied by WeWork, the report said.
The only other lease to break the 60K SF threshold was investment management firm Fayez Sarofim & Co. leasing a nearly 61K space at Texas Tower, also Downtown.
The overall decline in leasing activity reflects economic uncertainties and cautious sentiment moving into election season, according to the report. While the availability rate — the amount of space available for occupancy in the next six months — decreased to 26.2%, the amount of actively vacant square feet ticked up 60 basis points to 23.9%.
“Though Houston’s office market has seen sustained weakness post-Covid, this quarter’s dip in larger deals is likely not a warning sign of a ‘new normal’ but rather a symptom of the ‘wait-and-see’ approach several tenants are dealing with today due to the election and other macroeconomic and global concerns,” CBRE Business Intelligence Director Eli Gilbert said in an email to Bisnow.
CBRE is also tracking “several larger tenants” that plan to transact over the next few quarters, Gilbert said.
Looking forward, CBRE predicts “a mix of challenges and opportunities” for the Houston office market. While relocations and downsizes are leaving large blocks of space vacant, there are continued discussions around redevelopment like that of the Halliburton campus in Westchase.
Houston also benefits from population growth and job growth, and another 184,000 jobs are projected to be added through 2029. The Federal Reserve’s interest rate cut could also invigorate the market by making borrowing more affordable and encouraging investment, the report said.
UPDATE, OCT. 4, 9 A.M. CT: This article has been updated to add comments from CBRE.
