Continued job growth and a reviving Houston economy are some of the factors contributing to positive absorption in Q3 2019. Although the Houston office market posted 228,000 sq. ft. of positive absorption, submarkets that absorbed over 100,000 sq. ft. include Greenway Plaza, Energy Corridor and Westchase. Positive absorption was split between Class A at 4,000 sq. ft. and Class B at 324,000 sq. ft. while Class C ended the quarter with negative absorption of 100,000 sq. ft.
Positive absorption came from legal and insurance firms, such as SmyserKaplan & Veselka, and McGriff, Seibels & Williams as well as energy and manufacturing firms, including WaterBridge, Sunnova Energy, and CAM Integrated Solutions.
Negative absorption was concentrated in the North submarket. Southwestern Energy consolidated into the North Tower and vacated 289,000 sq. ft. in the South Tower at 10000 Energy Drive.
Developers are showing confidence in Houston as the construction pipeline expands to 2.3 million sq. ft. with properties breaking ground in the CBD, Katy Freeway, and Far West submarkets. Included in the figure is the old post office at 401 Franklin in the CBD submarket which is being redeveloped into a mixed use space. Along with 130,000 sq. ft. of office, the redevelopment will include space for coworking, retail, art, and music.
At 6.7 million sq. ft. in Q3 2019, the inventory of sublease space decreased by 400,000 sq. ft. from the prior quarter. Over 745,000 sq. ft. was sublet while over 450,000 sq. ft. was added to the sublease market. Tenants took advantage of sublease space which often offers lower rental rates in higher quality properties and frequently includes furniture.
The top submarkets that saw strong performance in sublease leasing include CBD, West Loop / Galleria, and Westchase. Conversely, CBD and Greenway Plaza added the greatest amount of new sublease space to the market.