Houston office vacancy continues to decline

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The Energy Corridor is home to some of the largest leases signed in the fourth quarter in Houston including McDermott's 524,300-square-foot lease at Energy Center Five and Transocean Ltd.'s (NYSE: RIG) lease of 300,000 square feet in Enclave Place. However, the Energy Corridor had 197,000 square feet of negative absorption in Q4, largely due to Amec Foster Wheeler vacating all of Energy Center I due to its merger with Wood Group.

Though it's still well above the national average, Houston's office vacancy rate is starting 2019 on a positive note.

The market's vacancy decreased to 20 percent in the fourth quarter of 2018 from 20.6 percent in the third quarter of 2018, according to a research from Seattle-based Colliers International. Houston's vacancy rate is still above the city's five-year average of 16.4 percent, per Colliers, as of the fourth quarter of 2018.

There's a big difference between the performance of Houston's Class A and Class B properties. The city's average Class A vacancy rate in the downtown core currently sits at around 19 percent, while the average vacancy rate of a Class B office building in downtown hovers around 30 percent, per Colliers.

Over the past few years, Houston's most volatile submarkets have been the downtown core and west Houston. Some of the largest leases signed in the fourth quarter were signed in those submarkets, though. Those leases include Houston-based McDermott's 524,300-square-foot lease at Energy Center Five, Transocean Ltd.'s (NYSE: RIG) lease of 300,000 square feet in Enclave Place and Houston-based Waste Management Inc. (NYSE: M)'s preleasing 284,000 square feet in Capitol Tower in downtown Houston.

 

Houston saw positive net absorption overall for the fourth quarter, according to a report from CBRE. However, the Energy Corridor had 197,000 square feet of negative absorption largely due to Amec Foster Wheeler vacating all of Energy Center I due to its merger with Wood Group, per the CBRE report.

More than 1 million square feet of office space delivered in the Houston area in the fourth quarter, including buildings for the American Bureau of Shipping and Hewlett-Packard Inc. in Springwoods Village. Houston office deliveries totaled 1.2 million square feet for 2018 with another 2.2 million square feet under construction, according to CBRE.

Sublease space

Sublease space is on its way down in Houston. Over the fourth quarter in 2018, Houston's total availability of sublease space decreased to 8 million square feet from 8.9 million square feet, per Colliers. That's down more than 30 percent since late 2016 when Houston was bloated with more than 12 million square feet of sublease space.

There's still plenty of large chunks of space available for grab in Houston. Of the 1,734 office buildings that Colliers surveyed, 26 buildings in the Houston area have 200,000 square feet or more of contiguous space available. Another 79 buildings have at least 100,000 square feet of contiguous space