Mid-2022 Houston Commercial Real Estate Market Report
September 1st, 2022
Houston Office Market
Latest data from Q2 2022 shows Houston’s total office space inventory at 349.5 million square feet, a significant bump in supply from the mid-2021 figure of 173 million square feet. Despite the increase in stock, there have finally been gains in occupancy, with Q1 signalling this healthy marker for the first time since the start of the pandemic.
There were hints of this recovery at the end of 2021. The trend of last year’s subpar market performance was bucked by Class A and trophy office space (Class A+), which accounted for more than 60% of all leasing activity in Houston during Q3 2021. This positive influence has continued into Q2 2022, with Class A demand being the sole driver for occupancy gains in roughly half of Houston’s office submarkets.
Recently refurbished Class A offices, in developments built after 2005, are bucking the vacancy rate trends. These buildings report only 17% vacancy in Q2 2022, compared to the overall Class A vacancy rate of 25.6%. The new renovation programs undertaken by these mid-age office suppliers have clearly been a hit with Houston businesses, serving to satisfy post-pandemic amenity demands better than their newly developed A Grade counterparts.
Despite these low vacancy rates, the five largest leasing deals during Q2 2022 were for new and Class A CBD office space. This trend can be further illustrated by the newly completed Texas Tower, with occupancy already at 70% leased, despite only opening in the first quarter of 2022. As with the vast majority of major cities in the United States, the Houston CBD appears to be the focal point for the highest activity.
Key Takeaways
- Inventory – 349.5 million square feet
- Overall vacancy – 23.4% (a slight decrease from Q1’s 23.6%)
- Net absorption – negative 90,000 square feet (due to coming off the back of the bumper mid-year figure of +641,7000 when several substantial tenants moved into newly completed offices)
- Availability – 27.6%
- Average asking rents – $30.80 (up 1.9% YOY)
- Investment sales – $156 per square foot (up from $116 in Q2 2021)
