Houston, How Bad is our Problem?
September 30, 2020

As the saying goes, misery loves company!

To say the last several months have been tough for the Houston office market would be the understatement of this year we are all coming to love and know all too well.

Negative oil, work from home orders, downtown riots, home schooling, bankruptcy after bankruptcy, not just tepid demand but no demand and the list goes on and on and on. The fact is the Houston office market was at a relative standstill before the pandemic reared its ugly head and oil prices crashed. Total vacancy was at multi year highs of 19% (28.4 million SF) in Q1 of this year and Landlords were signing deals with massive concessions packages resulting in net effective returns that would hardly cover their debt service.

There is no doubt that the current office market is extremely challenging for Landlords and will continue to be for the next several years. That said, the fundamentals haven’t changed dramatically in the past 6 months – that is mostly due to little to no deal activity. How do you know where the market is when there really is no market? And when you start looking around the country, Houston is now no worse off than many of the other major office markets. San Francisco has not only been littered with trash left by their massive homeless population but also massive amounts of sublease space, which has grown by 120% since Q3 2019. Stories like social media giant, Pinterest, terminating a 490,000 SF lease in the heart of the city at a $90 million penalty have become the norm. New York City just reported that almost one-fourth of all available space in Manhattan is currently sublease space – the highest rate in 7 years.

So, while Houston has major problems, it is also suffering the same as the rest of the country. The question remains then, what happens next?