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Houston is known for its renowned museums and world-class medical center. It’s also the home of NASA’s Johnson Space Center. Additionally, Houston houses the headquarters of many major corporations, including ExxonMobil, Chevron, and Shell Oil.
Unemployment in Houston declined from 4.2% in Q3 2022 to 3.9% in Q4 2022. Its metro area’s population increased from 6.49 million to 6.6 million in 2022.
In Q4 2022, Houston’s office space market saw vacancies nudge slightly lower, rents decline, and modestly positive absorption.
Houston is the largest city in Texas and has an estimated population of 2.3 million people. The population is racially diverse, with approximately 44% identifying as Hispanic or Latino, 24% White, 22% African American, and 8% Asian.
As of 2021, the median household income in the city is approximately $60,000. The economy is driven primarily by the energy industry, with growing healthcare, aerospace, and technology sectors. Compared to other major cities in the country, the cost of living in this city is relatively low, yet its residents continue to worry about inflation.
The median age in the city is 33 years old. The city is known for its diverse age range and offers vibrant nightlife, cultural events, and outdoor activities.
This city is home to several prestigious universities and colleges, including Rice University, the University of Houston, and Texas Southern University. Additionally, Houston Community College and Lone Star College offer a range of academic programs, from business and engineering to healthcare and the arts.
Visitors and residents enjoy various attractions, including the Space Center Houston, the Houston Museum of Natural Science, and the Museum of Fine Arts. Other popular attractions include the Houston Zoo, the Houston Arboretum and Nature Center, and the Buffalo Bayou Park.
This city has a humid subtropical climate with hot summers and mild winters. High humidity is prevalent throughout the year, with frequent thunderstorms in the summer months. The city enjoys an average of 204 sunny days yearly, though heavy rain events may cause flooding.
Overall vacancies for Houston office space were at about 23.3% in Q4 2022, a 0.1% decline from Q3’s 23.4% and still one of the highest in the nation.
Office space vacancies were highest with Class B space in Houston’s CBD at 34.5%. The Suburban submarket’s Class C space had the lowest at 9.2%.
There were nearly 99,000 square feet of positive absorption for Houston’s office space market in Q4 2022. The CBD and Suburban submarkets accounted for about half of that at 50,000 and 49,000, respectively.
The CBD’s Class C space was the only building type to see negative absorption for the quarter at -6,000.
Absorption for Houston office space ended the year at 285,000 square feet.
Average rents for Houston office space declined from $30.86 per square foot in Q3 to about $30.85 in Q4.
Suburban rents averaged $26.91, while CBD rents averaged $42.70. The CBD’s Class A space saw median rates of $45.06.
Class C space in Suburban markets averaged the lowest at $17.11 per square foot.
Sales volume for Houston office space reached $114.5 million in Q4 2022, bringing the market’s annual total to around $1.7 billion.
The total for 2022 was lower than 2021’s $2.2 billion.
Leasing volume reached 13.7 million square feet, an increase from 12.6 million square feet in 2021.
There were several notable deals that took place for Houston office space in Q4 2022:
These are select examples among other activity.
Houston office space saw about 54,000 square feet of new deliveries in Q4 2022, a significant decline from Q4 2021’s 1.6 million square feet.
At the close of 2022, 1.9 million square feet of new product were under development.
New leasing activity among office space in Houston may remain underwhelming as we progress into 2023. Expect subdued new construction as well.
A broader return-to-office among Houston employers would greatly assist the market, but that still remains to be seen even as we enter Q2 2023.
Houston’s office space will continue to perform modestly. Investors should approach this market with caution.
Do your research, stay diligent, and happy investing.
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