Houston Office Report – Spring 2019

With 18,600 office jobs added from March 2018 to February 2019, the local market continues its steady recovery, underpinned by strong market fundamentals, diversification and consistent demand for space.
Office-using employment in Houston, click to enlarge
Office-using employment in Houston, click to enlarge

Houston’s office market continues its steady recovery, underpinned by strong market fundamentals and consistent demand for space. As a market traditionally rooted in energy, Houston has been taking major steps toward diversifying its economy and making headway in the technology, innovation and health-care sectors, among others. Employers added 18,600 office-using jobs in the 12 months ending in February, with professional and business services leading gains (up 3.5 percent), on par with national trends.

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Development activity is driven by a flight-to-quality trend, with tenants seeking newly constructed and more efficient office space. Some 2.6 million square feet was under construction as of March; that will add 1.1 percent to existing stock upon delivery. Developers remain optimistic despite rising labor and construction costs, breaking ground even on speculative projects in the late stages of the real estate cycle. Year-to-date, one development has broken ground in Houston: Stonelake Capital Partners’ Park Place River Oaks is being built on spec, with a completion date scheduled for late 2020.

Employment growth by sector in Houston, click to enlarge
Employment growth by sector in Houston, click to enlarge

Investor interest has been steady compared to previous years, despite a slowdown in transaction activity in the first quarter, in line with national sales trends. Buyers continue to focus on core submarkets and value-add opportunities that could generate higher returns. Acquisition yields for highly rated properties were in the 6.5 percent to 7.0 percent range. Houston is trending slightly higher than other second-tier markets such as Phoenix, Austin and Atlanta.

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