Houston’s office boom is just about over

Ryan Holeywell | @RyanHoleywell | June 24, 2015

Image: Flickr/eflon

Image: Flickr/eflon

 

Houston is building vastly more office space than any other city in America – but the boom may be coming to a halt.

More than 12.8 million square feet of office space is under construction in Houston, according to a new report on first quarter development by commercial real estate firm JLL

That’s almost 80 percent more office space being built here than in New York City, the second-ranked city on the list.

Yet that figure is declining quickly. Quarter-over-quarter, office space under construction declined 20 percent in Houston.

“Previously a leader in most fundamentals, Houston has begun to show signs that its reaching its peak,” the study said.

 

The reason, JLL said, is largely the slowdown in the energy sector.

More than 2.5 million square feet of office space available for sublease has come onto the market in recent months, largely the result of cuts to energy companies. As more oil companies struggle and eventually declare bankruptcy, even more office space is poised to come online, the report said.

That means the rush to construct buildings for the once-booming Houston economy is poised to finally slow.

“While there is still in excess of 12.8 million square feet of space under construction, the next cycle of speculative development is not anticipated for 18 to 24 months,” JLL wrote. “The combination of tighter construction financing and slower than anticipated job growth has given developers and investors pause in Houston.”

In Houston, just one project in excess of 100,000 square feet began construction in the first quarter.

Houston was one of the only markets in the country that didn’t see rent for office space increase in the first quarter. Today, Houston has “shifted from a landlord-favorable market to a peaking market with rent declines over the past two quarters,” the study indicated.

Houston was also the only markets t at reported a reversal of development activity in the first quarter, with 3.4 million square feet of planned projected coming offline.

Dallas office construction, meanwhile, is booming. And that trend is likely to continue. The report highlights a vacancy rate there of 19 percent which is “extremely low by historical standards.”

 

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One Comment

  1. Situations or instances like that should have been forecast right before building implementing the whole project. Well I’m not against it and I’m not saying that Houston had a very wrong decision to push through, it’s just that I’m that type of person who is visionary and always making sure that things will end up the way I wanted them to. Well it’s not yet too late for Houston to not re-explore the CRE industry. Time will come that those office space for rent will be in high demand and will be used by great businesses, who sees opportunities for growth in Houston.

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