Cypress Edition | February 2024

Real estate

BY SHAHERYAR KHAN

The Houston oce market has grappled with persistent challenges since the COVID-19 pandemic led to a work-from- home trend. As of Jan. 10, Kastle Systems reported 58.7% of Houston oce workers were working from the oce—up from 34.7% in the rst quarter of 2021. A Jan. 9 report from the Greater Houston Partnership stated the region’s oce market had a positive net absorption in 2023 for the rst time since 2019, meaning more space was leased than vacated. However, ocials said Houston’s net absorption would have been negative again last year without the 950,000 square feet of positive absorption in the medical oce market. Oce leasing to ‘remain weak’ in Houston in 2024

The impact

Patrick Jankowski, senior vice president of research for the GHP, predicts o ce leasing to “remain weak” in 2024. “The number of o ce lease transactions ... is trending down,” he said at the Dec. 7 Houston Region Economic Outlook. “This reects a general slowdown in construction and leasing activities across dierent sectors of the real estate market.” Before the pandemic, suburban o ces were already gaining popularity due to reduced

commute times and focused work settings, Win- throp Realty Group Principal Andrew Armour said. “The proximity to upper-middle-income hous- ing and the demand for quality spaces contributed to the attractiveness of suburban areas,” he said. On the other hand, older buildings requiring longer commutes have encountered di culties, contributing to increased vacancy rates, he said. The oversupply of o ce space has limited land- lords’ ability to increase rents, Armour said.

Houston oce space vacancy rates

20%

5% 10% 15%

2019

2020

2021

2022

2023

Oce space net absorption in Houston Net absorption is the amount of space leased minus the amount of space vacated. 2M

SOURCE: WINTHROP REALTY GROUPCOMMUNITY IMPACT

The breakdown

• The hybrid work model will persist, with companies exploring alternative ofice solutions balancing flexibility and the need for physical spaces. • The suburban ofice market is expected to remain stronger than the urban markets.

Armour predicts the following developments will take place in the o ce space market in 2024: • Older buildings will be repositioned into smaller, more flexible ofice spaces.

-1M -2M -3M -4M

2020 2021 2022 2023

SOURCE: GREATER HOUSTON PARTNERSHIP’S ANALYSIS OF COSTAR DATA COMMUNITY IMPACT

COMMUNITYIMPACT.COM