Good Time for Non-Energy Tenants to Lease

When pent-up demand will occur is still unknown.

HOUSTON—Tenant activity among the energy sector is limited for the time being because many energy tenants either already renewed or expanded leases in 2014 and early 2015. Or perhaps they are on the sidelines if leases expire in 2017 to 2018. Some of these energy tenants are taking the “wait and see” approach until they see clarity in the business outlook. These factors would make it a good time for non-energy tenants to be in the market. Colvill Office Properties reports good activity among law, accounting and consulting firms as well as smaller tenants, and anticipates the Houston market will experience a pent-up demand market for larger energy tenants once oil prices stabilize. The question of when will that time come is still to be answered. Chip Colvill , president and CEO of Colvill Office Properties tells GlobeSt.com: “Declining oil prices have certainly affected energy-related companies; however, Houston’s employment base is diverse, helping balance the job losses in the energy sectors.” Despite a record-setting surplus of space available in the Houston office market, the city experienced more leasing activity than normally expected in a market where oil prices hovered around $40 per barrel. A record 1.3 million square feet of class-A sublease space (full floor or more) was added to the market during the first quarter, bringing the total to 6.7 million square feet available, says Colvill Office Properties. Houston class-A overall occupancy ended the first quarter at 77.7% (including sublease space), down from 79.5% in fourth quarter 2015 and down from 83.5% this time last year. Average quoted rental rates remained relatively flat during the past two quarters, closing the first quarter at $25.42 per square foot. The Houston office market posted a positive 1.4 million square feet of class A net absorption during the first quarter, however, this was mostly comprised of pre-leased new construction deliveries and owner-occupied buildings, according to Colvill Office Properties’ first quarter office report.