Cy-Fair Edition | March 2022

REAL ESTATE Oce vacancy rates hover near 20% in Cy-Fair

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BY MIKAH BOYD

some, those who cannot aord to make themmay ultimately repurpose their buildings, he said. “Those in the desirable locations should fare well and bounce back eventually with increased occu- pancy,” Bandy said. “For those buildings in less desirable areas— those buildings may go through a repurposing to how those buildings are used going forward. Repurposing could include storage uses, convert- ing to residential uses and being sold for redevelopment.” Alternative spaces While oce spaces adapt to the changes in the market, small businesses are more frequently buying oce condo space in Cy-Fair because it can be more cost ecient for their operations, according to Mike Evenson, founder and CEO of Lone Star Oce Condos. He explained that since the pandemic, he has seen an increase in demand for these oce spaces because of the convenience they oer. For employees, there is the appeal of in-unit heating and cooling systems, and customers can access a business more directly. These smaller oce spaces are also popping up intending to draw in customers who want to set up satellite oces for their employees, Evenson said. “From my perspective on the oce condo development, it’s going to increase because communities, very big ones, are moving out to Fulshear past Katy,” he said. “And they’re going to be having rooftops going up, you know, thousands of them, and there’s going to be a need for this type of oce product.” The growth of the oce condo market has seemingly been unharmed by the pandemic, accord- ing to Evenson, which is in stark contrast with corporate spaces. “If their oces are 2,000 square feet, they’d have to buy an acre, put detention on it, and they’d have to maintain it. It would be cost prohibi- tive to them,” Evenson said. “Where here they can just buy 2,000 square feet, and everything else is left up to the association, the maintenance and all that, so all they need to do is concentrate on their business and let the association take care of the

The COVID-19 pandemic changed the way many local oces oper- ate, and the shift in the market is reected in higher vacancy rates across Cy-Fair and the Greater Houston area. Oce vacancy rates rose from 15% before the pandemic to around 20% throughout the shutdowns and reopenings in the Cy-Fair area, according to data provided by Caldwell Cos. By comparison, retail and industrial vacancy rates were about 5% and 8% locally at the start of this year. Gri Bandy, a partner with com- mercial real estate rm NAI Partners, explained oce vacancy before the pandemic can largely be attributed to a soft energy industry, which only worsened when the pandemic hit and people started working from home more. “[The] reason for uptick in vacancy in our estimation was an energy industry that had not yet recovered coupled with the push for more ‘work from home’ during the COVID[-19] pandemic,” Bandy said. “Many companies with leases that expired over the last couple of years have downsized, done shorter-term lease extensions or elected to change their oce use they once had pre-pandemic.” NAI Partners reported in the fourth quarter of 2021 the overall oce vacancy rate in Houston was 25%. While rent per square foot increased from $29.26 in the third quarter to $29.32 in the fourth quarter, the average rent is still $0.55 short of what it was in 2020 across the Greater Houston area. In Cy-Fair, rental rates continually dropped throughout 2021. According to Caldwell Cos., oce rent per square foot had fallen to $17.01 by the end of the year. Despite declines in rent and climbing vacancy rates, NAI Partners ocials said the pandemic does not seem to be as great of an obstacle to the market as it was a year ago. However, experts in the report said signicant growth may still be out of reach for the next couple of years. According to Bandy, the drop in rent prices is one of the concessions landlords are making to attract good tenants and renew contracts. While these concessions are feasible for

Oce condominiums are becoming increasingly popular in the Cy-Fair region. (Courtesy Mike Evenson)

TRENDS IN THE OFFICEMARKET

Quarterly analysis by Caldwell Cos. reveals Cy-Fair vacancy rates have increased throughout the pandemic as rental rates decrease.

Quarterly oce vacancy rates Vacancy

10% 15% 20% 25%

Q3 2021: 20.7%

0% 5%

April 7 7 p.m.

Oce rental rate per square foot Rental rates per square foot

$10 $15 $20 $25

Q2 2020: $18.26

$0 $5

COMING TO BRIDGELAND 2025

SOURCE: CALDWELL COS. COMMUNITY IMPACT NEWSPAPER

common area.” In all, Evenson and Bandy said they have found the need for oce space is not going away anytime soon. Large oce buildings will begin to ll once people start going back to work in person, and small businesses will continue to seek out smaller oce spaces to meet their customers more directly. “From what we hear from our cli- ents and what we see in the market, oce space is not going away, … but how it’s used by many companies going forward will be dierent than it has been used in the past 20 years,” Bandy said.

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CYFAIR EDITION • MARCH 2022