Houston Office ViewPoint - Six Years of Spec Could Leave Five to Seven on Deck
More than 30 million sq. ft. of Class A office space has been developed in Houston during the latest construction cycle that began in 2010. Construction is mainly concentrated in the five submarkets comprising West Houston and the Central Business District (CBD).
The high concentration of energy occupiers throughout these two areas means office leasing is intrinsically tied to the fortunes of the oil & gas sector. That said, investment bank projections for crude oil prices indicate steady recovery over the next 2 years, averaging $58/bbl by Q4 2017, up approximately 15% from October 2016.
Therefore, assuming projected job growth scenarios, Class A availability should peak in 2017 at approximately 24% in West Houston and 19% in the CBD, and then begin to decline with the most momentum on occupancy gains occurring during 2018-2019.
Based on prior cyclical job growth and office absorption, Houston’s CBD Class A market has historically seen 10 sq. ft. of absorption generated per job added to the overall Houston economy while West Houston Class A has captured 16 sq. ft. per job.
As a result, CBRE Research estimates a period of 5-7 years of steady office space absorption patterns prior to the start of another significant Class A construction and development cycle in the West Houston market.