• Energy companies are vacating a significant amount of office space.
  • Twenty-two office projects and 98 multifamily developments are underway in Houston.
  • The Inner Loop will be heavily impacted by multifamily deliveries this year.

Houston’s office and multifamily markets are in for a difficult year, as vacancy rates in both real estate sectors are expected to noticeably increase.

Entering this year the city’s overall office vacancy rate stood at 17.6 percent. Brandon Clarke, senior vice president of CBRE Houston, expects that rate to reach more than 21 percent this year, according to a Realty News Report article.

The primary reasons for the projected increase in vacancy rates: energy companies vacating space and the volume of new office space slated to be delivered.

In downtown Houston, Shell Oil Co. recently put 350,000 square feet of office space onto the sublease market. Additionally, Exxon Mobil recently vacated roughly 2 million square feet of office space.

According to a CBRE fourth quarter report, Houston leads the state in office construction, with 7.4 million feet underway spread among 22 projects. Last year, 11.3 million square feet of new office space was delivered, the highest level of new construction since 1983. Most of this activity was within the West Loop/Galleria and West Houston submarkets.

Of note, during the fourth quarter of 2015 a sizable chunk of the city’s office space absorption was driven by two oil and gas firms occupying nearly one million square feet of space, according to CBRE. Overall, net absorption totaled 1.2 million square feet during the quarter.

Multifamily headed toward overbuilt status

As of the beginning of this month there was 98 multifamily projects underway totaling 27,941 units. Of these units, 18,000 to 20,000 will be delivered this year, according to Houston-focused Apartment Data Services.

Developer rule of thumb says for every five or six jobs added to the market the demand for one apartment unit is created. This year job growth is projected to only reach 22,000.

As a result, its likely only half of the units delivered will be absorbed, which should affect vacancy rates in certain submarkets. The Inner Loop represents the market with the most multifamily deliveries, 26, slated for this year. The Woodlands/Conroe, Galleria and Energy Corridor/Katy markets all have upwards of 16 multifamily deliveries expected for 2016.

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