Houston Office Demand Nose-Dived In May, And Weather Is The Likely Culprit

May was Houston’s slowest month for office demand so far in 2024, and the deadly derecho was likely responsible, according to office leasing platform VTS.

Midsized tenant demand was down 38% month-over-month in May, and large tenant demand was down 48%, according to VTS data, which tracks tenant touring activity. Houston also saw a decline in the residential market in May, with home sales down 1.5% compared to a year prior.

Both markets’ declines are believed to be tied to severe weather. 

A derecho — a severe storm marked by intense, high-speed winds — ripped through Houston on May 16. It killed eight people, shattered thousands of windows in Downtown skyscrapers and left more than $1B in damage. 

“Having a weak May is not super typical,” said Max Saia, vice president of investor research for VTS. “May is usually a stronger month. Demand is seasonal, but it tends to build until the peak summer months when we see the drop-off.” 

The unusual severe weather was likely the main cause of the decreased activity, according to VTS. The May fall followed several good months for office demand, so the decline wasn't anything catastrophic, Saia said.

Tour activity from small office tenants increased 92% over February, March and April compared to the prior three months, and it was up 77% year-over-year, according to VTS data. 

Year to date, new office demand has grown 31% year-over-year, the data shows. That's down 10% from pre-pandemic levels but gives Houston the second-best ranking of the markets VTS analyzes, behind only Los Angeles. 

“Despite the weak May, it’s been one of our strongest-performing markets that we track,” Saia said. 

Houston remains challenged from an oversupply standpoint, but there are good indicators in the office market, he said, adding that VTS is seeing solid growth and momentum in Houston. 

VTS collects new office demand data via software allowing owners to track their lead-to-lease process. New office demand incorporates any tenants that have embarked on a search for space, even if that is renewing their lease, Saia said.

Demand was highest in the professional services industry over the three months ending in May, at 428K SF, according to VTS. The professional services industry includes services like consulting and architecture. 

In April, three-month office demand from the finance sector increased 91% from the prior three months. The legal sector also had short-term momentum in April, with 400K SF over the three-month period, a 190% improvement from the trailing three months and a 65% boost year-over-year. 

Office demand from the finance and legal sectors continued growing in May, according to the data. 

Looking ahead, office demand should rebound as deals that were held off due to the weather move forward, Saia said. 

“Since the weakness in May was largely weather-related, we expect, year-over-year, Houston to have some solid leasing growth and performance,” he said.