Houston’s Class A Suburban Office Rental Rate Increases 5.5%
Houston’s office market has undergone significant changes in the past twelve months benefiting from positive absorption, falling vacancy, and rising rental rates. Increased leasing activity has made it harder to find available blocks of quality Class A office space, creating a demand for new office construction. Both multi-tenant and single tenant users are spurring this new growth.
Expansion in the energy sector has spurred demand for office space. Anadarko has begun construction on a second office tower (550,000 SF) in The Woodlands and Phillips 66 recently announced to build a new headquarters in West Houston.
The Woodlands Development Company currently has 3 Waterway Square Place under construction, where Nexeo Solutions pre-leased 64,000 square feet and Waste Connections pre-leased 49,929 square feet in the 11-story, 2340,00 square foot Class A project.
Citywide, overall vacancy levels decreased by 90 basis points between quarters to 14.6% from 15.5% and by 130 basis points from a year ago. The most significant decrease in vacancy since the previous quarter is the CBD Class A vacancy rate, which decreased by a remarkable 300 basis points to 11.3% from 14.3%.
The average citywide rental rate rose between quarters by 1.5% to $23.56 from $23.20 per square foot and on a year-over-year basis by 3.3% to $23.56 per square foot from $22.81 per square foot. The largest quarterly rental rate increase was Class A suburban office rental rates which increased by 5.5% to $28.86 per square foot from $27.34.
The Houston metropolitan area added 93,400 jobs between February 2011 and February 2012, a 3.7% increase. Unemployment fell to 7.2% from 8.4% one year ago. Houston area home sales increased by 16.9% since February 2011. With continued expansion in the energy industry and a strong housing market, Houston’s economy is expected to remain healthy for the near and long-term.