Glut in Sublease Space Does Not Affect All Equally

The Highway Six Professional Building is located at 16100 Cairnway Dr.

HOUSTON—Houston’s office market currently has more than 650 sublease spaces among its class-A and B buildings, collectively representing 8.7 million square feet or 16.1% of the available market. More than 3 million square feet (or 34%) of all sublease space is accounted for by just 13 energy companies that are responsible for all 17 blocks of sublease space of more than 100,000 square feet, including 350,000 square feet recently added by Shell oil company. By competing with direct availability, sublease space can soften an office market, leading both tenants and landlords to question the future of their leases. In some instances, tenants are finding great opportunities for new leases or early renewals. In other cases, landlords remain on solid ground providing few concessions. It seems that divergent scenarios can occur simultaneously within Houston’s office market, says NAI Partners . Data analyses by Nat Holland , chief research and data scientist at NAI Partners, show that the huge glut in sublease availability is not affecting all of Houston equally. Submarkets differ vastly in the amount of sublease space. For example, while Houston’s office market has 47 submarkets, 73% of sublease space occurs in just four submarket clusters, namely Katy Freeway East and West (2.21 million square feet), Downtown (1.90 million square feet), Westchase (1.22 million square feet) and West Loop/Galleria/San Felipe (1.03 million square feet). Sublease availability is typically about 9.2% of total availability.  Currently, sublease space represents a larger portion of availability, including 32.6% of Westchase total availability, 28.4% of Katy Frwy East/West total availability, 18.3% of Downtown total availability, 18.4% of West Loop/San Felipe total availability, and 16.5% of Woodlands total availability. Yet, other submarkets maintain low sublease availability ranging from 3 to 8%, including Greenway Plaza, Southwest/Sugarland, NASA/Clear Lake, and Northwest. Lane Morgan , associate broker of NAI Partners, indicates that “having submarket data to this depth allows our clients to see how well situated they are to negotiate future office lease transactions. Any office tenant with 12 to 18 months remaining on their lease should consider using such submarket data to capitalize on where the market is heading, while exploring how their current landlord stacks up to another that may be more eager to earn their tenancy.” Yet, submarkets dominated with short-term subleases may not soften as much in the near term as submarkets with longer terms, which compete more with direct space for prospective tenants. To this end, more than 50% of sublease space in Katy Frwy East/West, Downtown, Westchase and West Loop/San Felipe submarkets has remaining terms that are longer than more than years. On the other hand, Greenway Plaza, Southwest/Sugarland, NASA/Clear Lake and Northwest submarkets are dominated by short-term leases of less than two years.  Although subleases are distributed across many of Houston’s submarkets, the effects on local submarket conditions are most prominent in Katy Freeway East/West, Downtown, Westchase, West Loop/San Felipe and Woodlands submarkets. In other office leasing, management and sale news, NAI Partners Property Services Division has been awarded the property management assignment on behalf of Highway Six Houston LLC to manage the 60,000-square-foot Highway Six Professional Building located at 16100 Cairnway Dr. James Tainter , NAI Partners’ managing director – property services division, tells GlobeSt.com: “Highway Six Professional Building is currently 50% occupied. The current ownership is managing this building from out of state, and thought the building and its growing tenant base would benefit from having local professional management.” Also, NAI Partners represented Tipton Company in the acquisition of  a 10,000-square-foot office/warehouse space on 1.937 acres located at 3565 South Loop 336 East in Conroe, TX. Chris Caudill of NAI Partners represented the buyer, Tipton Company in the negotiations, while Robin Patterson of Sellers & Associated represented the seller, Mary Ladoris Cates .