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4/12/23
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This update provided by real estate services firm Avison Young
Houston’s economy is coming off a remarkable year with record job growth in 2022, but office market fundamentals remain soft, according to Avison Young’s just-released First Quarter 2023 Office Market Report for Houston. The firm says there is a disconnect between office-using job growth and space demand as flexible work has changed how companies and employees use office space.
The office market posted 148k sf of negative absorption in the first quarter of 2023 as companies reduced their physical footprint, causing vacancy to rise to 26.9%, hitting its highest level on record. However, there are signs of stabilization as the vacancy rate has experienced its slowest annual increase since the oil crisis emerged in 2015.
“It is encouraging with interest rates still increasing that leasing activity is continuing to build steam,” said Wade Bowlin, Principal and Managing Director of the firm’s Houston office. “In addition, we are seeing expansions in the market. This trend is very good for the office market overall. It appears we have reached the bottom and are beginning a slow upward trend for the sector.”
Office leasing activity has continued to gain traction with 2.6 msf leased in the first quarter of 2023. Even though office leasing activity experienced a temporary pullback during the first quarter compared to a year ago, the Class A sector accounts for a large share of the demand with 10 msf leased over the trailing 12 months, up 35.4% year-over-year.
Principal and office tenant representation specialist Anthony Squillante noted, “Class A office space that is well-located and offers on-site and nearby amenities for tenants has been experiencing strong leasing activity. Conversely, Class B and non-core buildings in less favorable locations are seeing increasing vacancies. This is a trend we have been tracking for the past several quarters as tenants seek to take advantage of landlord concessions and upgrade their space in trophy assets in an effort to attract and retain top area talent.”
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