Houston’s office market has struggled over the past few years with rising vacancy and slower than average job growth due to a weakened energy market. However, as the office construction pipeline has grown smaller and most spec developments have been put on hold, the office market appears to be stabilizing.

Although the average vacancy rate in Houston increased 100 basis points over the quarter, 1.8M SF of new inventory delivered and 40% of that space was vacant. Available sublease space has decreased over the last two quarters and energy sector layoffs have declined. The market will most likely remain relatively flat, plodding through 2017.

Houston’s office market posted 0.7M SF of negative net absorption during the first quarter, which is only 0.3% of Houston’s total office inventory. Developers have been disciplined over the last few years as evidenced by the fact the construction pipeline has shrunk by 50% in just one year and by 65% in two years. The 1.8M SF of office space under construction is 43% pre-leased and the majority is scheduled to deliver within the next year.

Recent press announcements regarding tenants pre-leasing space in proposed buildings indicates a preference for newer innovative space. Although this will eventually add more vacant space to an already saturated market, it is a very small percentage overall.

According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created 19,300 jobs (not seasonally adjusted) between February 2016 and February 2017. Most of the job growth occurred in arts, entertainment & recreation, government, retail trade, and education.

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