Q1 2023 Office Space Report: Houston, TX
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Houston is known for its prominent role in the energy industry, its vibrant cultural scene, and as the home of NASA’s Johnson Space Center, where human spaceflight missions are conducted.
Houston houses several major companies, including energy giants such as ExxonMobil, Chevron, and ConocoPhillips, as well as other notable companies like Sysco Corporation, Halliburton, and HP Inc., contributing to the city’s thriving business landscape.
The unemployment rate in Houston reached 4.8% in Q1 2023, a significant increase over Q4 2022’s rate. Houston’s office space market experienced some lag as leasing and sales activity dropped in Q1 2023.
General Area Overview & Demographics
Houston, often referred to as the "Space City," is a bustling metropolis located in the state of Texas, in the southern region of the United States. As the fourth-largest city in the country, Houston is a major center for business, energy, healthcare, and culture.
Houston, TX Economy, Population, & Demographic Makeup
Demographically, Houston is a diverse and multicultural city with a rich blend of ethnicities and cultures. As of the latest available data, the estimated population of Houston is over 2.3 million people. The city has experienced significant growth over the years, driven by a combination of natural increase and migration; yet, recent data shows that renters in Houston struggle to keep up with payments.
Houston’s population is incredibly diverse, with residents from various ethnic backgrounds. It has a large Hispanic or Latino population, making up a significant portion of the city’s residents. Additionally, Houston is home to thriving African American, Asian American, and White communities, among others.
The city’s economy is robust and diversified, with key sectors including energy, aerospace, healthcare, manufacturing, and technology. Houston is renowned as the global hub for the energy industry, particularly oil and gas. It hosts the headquarters of several major energy companies, including ExxonMobil and Chevron.
Geographically, Houston is situated in Southeast Texas, near the Gulf of Mexico. The city covers a vast area of over 600 square miles, making it one of the largest cities in terms of land area in the United States. Houston’s landscape is characterized by a mix of urban neighborhoods, suburban communities, and green spaces.
Houston offers a wide range of cultural attractions and events. The city boasts a thriving arts scene, with world-class museums, such as the Museum of Fine Arts, Houston, and the Menil Collection. It is also known for its diverse culinary scene, offering a variety of cuisines from around the world.
In terms of sports, Houston is home to professional teams such as the Houston Texans (NFL), Houston Rockets (NBA), Houston Astros (MLB), and Houston Dynamo (MLS). The city has passionate sports fans who support their teams enthusiastically.
Transportation in Houston is facilitated by an extensive highway system, public transportation options, and two major airports, George Bush Intercontinental Airport and William P. Hobby Airport.
Summary of Houston Office Space Performance in Q1 2023
Vacancies for Houston’s office space market decreased to 23.6% at approximately 50 million square feet of vacant space in Q1 2023; yet, this is still an increase from Q3 2022’s numbers.
The Westchase submarket posted the highest office space vacancy rate at 29.9%.
Net absorption for Houston office space also decreased to -469,000 square feet in the quarter.
What are office space rents like in Houston?
The gross asking rental rate for Houston office space increased to $31.40 per square foot in Q1 2023.
The CBD submarket posted the highest average asking rate at $41.92 per square foot while the East submarket posted the lowest at $17.76 per square foot.
The average Class A asking rate across all submarkets was about $37.80.
Purchase & Leasing Activity
Leasing volume for Houston office space experienced a 39.4% decrease quarter-over-quarter with 2.6 million square feet leased. The average sales price per square foot dipped slightly to $182.
Notable Office Space Deals in Houston in Q1 2023
There were several notable deals that took place for Houston office space in Q1 2023:
- Kiewit Engineering Group leased 277,155 square feet at 585 N Dairy Ashford Road.
- Modec International leased 116,161 square feet at 15375 Memorial Drive.
- Community Health Group leased 82,706 square feet at 4888 Loop Central Drive.
- Sovereign Capital purchased 980,472 square feet at San Felipe Plaza at $107 per square foot.
These are select examples among other activity.
New Office Space Development Activity in Houston in Q1 2023
About 1.3 million square feet of Class A property were under construction in Q1 2023.
There were no new deliveries posted in Q1 2023 for Houston’s office space market.
Market Forecast for Houston’s Office Space Market
Houston’s office space market could experience an increase in leasing activity as tenant demand is currently at approximately 3 million square feet.
The market will likely experience some stable activity as vacancies are likely to slowly increase as it has in recent quarters.
Takeaways for Office Space Investors
Flight-to-quality continues to be the trend for tenants as companies continue to create desirable work conditions for their employees to return to post-pandemic.
Investors looking to acquire property should consider Trophy or Class A properties or look to renovate lower class properties and offer competitive rental rates among lease concessions.
Do your research, stay diligent, and happy investing.
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