Overbuilding May Loom Over CBD Office Market

HOUSTON-While both the CBD and suburban Houston office markets have vacancies hovering around 9%, the story behind the numbers shows a very different picture. Downtown is the center of all construction right now, and some experts are unsure of where the demand for that space is going to come from.

“There is no net demand for downtown space right now,” Sanford Criner, managing principal with the Houston office of Trione & Gordon ONCOR International told a select group of about 181 at the firm’s mid-year office market review.

Of the 2.5 million sf currently under construction, approximately 400,00 sf of that is in the suburbs, showing a suburban market with supply in check over the next year-and-a-half. Additionally, 1.62 million sf of class-A suburban space has been absorbed so far this year. The total suburban market has absorbed approximately 550,000 sf, while its unlucky neighbor, the CBD, has absorbed a negative-640,000-sf in class-A space and a negative-720,000-sf across all classes.

Considering this, while the suburbs seem set for a steady future, according to Criner, Houston’s CBD is headed for choppy waters.

“Downtown is still a very desirable place,” he notes. Despite this, Criner believes that while some building owners will sit on their rates and empty space in an attempt to keep rents from dropping, others will lower their rates in order to attract tenants from outside the market.

Rental rates in the CBD right now are currently $27.50 per sf for class A space with the average rent among all classes at $19.62 per sf.