New Growth Engine is Juiced by Exports

HOUSTON—As the Houston office market struggles towards a gradual recovery, current economic indicators are largely buoyant, indicating robust economic output and inevitable growth. A recent CBRE MarketFlash examined projected office employment in the large metros within the Lone Star State. The report analyzes how Texas Triangle markets are expected to perform amid the five-year outlook for office space demand.

Despite positive economic momentum going into 2018, Houston had a return to negative demand in the first quarter of the year, as 418,000 square feet was vacated citywide. Office vacancy rose to 17.8%, propelling Houston to its highest level of vacancy since 1995.

However, during the first quarter of the year, job growth, energy-related activities and import/export trade all boasted positive grades. According to the Bureau of Labor Statistics, Houston created 63,600 new jobs in the 12 months ending March, with the largest increase in professional and business services (26,000 jobs). Houston appears poised for a recovery, with the net absorption rate expected to rise from a nearly flat rate of 0.5% for 2018 to 2.1% in 2019.

Some report takeaways were that Houston office employment is expected to create an additional 17,100 new jobs during this year. This is a quarter of the total estimated 72,000 positions that Moody’s predicts to be added this year, resulting in a noteworthy increase in net absorption during 2019.

“Similar to the DFW metroplex, Houston’s metro area created nearly 520,000 jobs during the same period since 2010. While local experts are cautiously optimistic, anticipating Houston to add around 45,000 jobs this year, Moody’s Analytics is forecasting on the upside,” Robert Kramp, director of research and analysis at CBRE, tells GlobeSt.com. “Instead of the energy sector, Houston’s new engine for growth is being juiced by exports, which have expanded faster than the economy in general, but exports and trade in the stake of local employment and gross domestic product has practically doubled since 2003.”

Occupiers are taking a vigilant approach to real estate strategy, chasing space efficiency while reinvesting savings into workplace improvements that will help lure and keep employees. And as prospects for the energy sector improve–with global crude inventories dwindling and the recent jump in prices spurring US drilling activity, Houston could once again find itself the Texas Triangle counter-cyclical market contender.

“Look for Houston to be a growing global link in trade and we’ll see what this means for the office sector,” Kramp continues. “But in the near-term, rental concessions in Houston’s office market such as free rent and hefty tenant improvement allowances have begun to flatten. This follows their steady climb during the energy downtown over the past three years, but concessions remain at elevated levels. Expect office leasing market conditions to favor tenants over landlords through 2020.”