Houston’s Office Market Reaches Post-Pandemic Highs As Industry Begins To Find Its Footing

Office recovery is slowly gathering steam in Houston. 

Sublease availability fell and leasing activity and tenant activity in the market improved from coronavirus pandemic lows and month-over-month in September, though Houston overall remains relatively middle of the pack compared to other American cities’ progress, according to a new monthly tracker from CBRE.

The report, which charts the state of office demand across three indices, showed a six-point increase in the Tenants-in-the-Market Index over last month. That represented the first uptick in space requirements after three months of declining demand, but was only enough to rank Houston eighth among the 12 metros tracked by CBRE.

Houston's Leasing Activity Index jumped up nine points to 77, placing it seventh among the 12 markets. But the city can boast it has the smallest sublease availability of all 12 markets. Houston's Sublease Availability Index stood at 95, 86 points below the U.S. average of 181. 

Even so, sublease inventory is at historic highs in Houston as companies wrestle with new space requirements in a post-pandemic landscape. 

Though the outlook is improving somewhat, office recovery is likely to take time. An Avison Young third-quarter report said office activity remains down 72% compared to 2019, and with the delta variant delaying a planned Labor Day push in returning to the office, further improvement may not come until 2022. 

CBRE Occupier Vice Chairman Lucian Bukowski told Bisnow he thinks a grand return to office will happen, though.

“Our city has … somewhat of a blue-collar attitude about going to work, [like] showing up, being present, getting things done," Bukowski said. "I think it’s just a mindset of a lot of Texans, the value that they place on hard work that drives them back to the office faster than the rest of the country."

With some of Houston’s largest office footprints taken by oil and gas companies, Bukowski also said that there is a push to send white-collar oil and gas workers back to the office to match the blue-collar workers unable to do their jobs from home. 

Houston routinely sits at or near the top of Kastle Systems' Return To Work Barometer, which measures Kastle keycard swipes at offices in 10 metros. For the latest week available, ending Nov. 3, 51.4% of Houstonians at least made an appearance, well above the national average of 37.8%. Avison Young's Vitality Index, measuring the pace of return to North America's downtowns, showed foot traffic in Houston's Central Business District was up 11.4% over the week prior as of Nov. 1 at 9,005 average daily visits.

That's the highest number since mid-July, though still nearly 63% below pre-pandemic levels.

Bukowski pointed out Houston was dealing with poor economic circumstances before the pandemic hit in early 2020, putting the city in a unique circumstance compared to the rest of the country. Oil markets fell in their most dramatic downturn since 1991 on March 8, 2020, three days before Mayor Sylvester Turner announced an emergency health declaration due to the pandemic. Early job loss estimates were as high as 300,000, though by the end of last year the Houston Chronicle reported a total of 60,000 jobs were lost between February and August 2020. 

“There were a lot of office jobs lost in that sector," he said. "There was a lot of capital destroyed and bankruptcies during that period of time. 

“Houston’s office market was in trouble before Covid, and I think that we’re experiencing the same problems that other markets are as a result of Covid," Bukowski added. "We’re going to be back to pre-Covid levels of occupancy before other markets are, but we’re still going to be [economically] unhealthy because of where we were when we went into it.” 

Additionally, sluggish activity in oil wells means oil and gas companies are being more financially conservative, Bukowski said, including in their office space. 

Avison Young Houston principal Rand Stephens told Bisnow the city's population and job growth pointed to better days ahead for Houston's economic health and the future of the office, which is still lagging due, in part, to the space upstream companies take. 

According to CBRE, Boston and Atlanta are top markets for recovery, while Los Angeles has lagged behind expectations. 

“The pandemic has taught us all that it’s best to keep optimism cautious. That said, September’s indices for office-leasing activity are encouraging by nearly any measure,” CBRE Global Head of Occupier Research Julie Whelan said in a release. “This should set the foundation for continued recovery, absent any unforeseen shocks.”