A surge of oil industry consolidation is colliding with Houston’s outdated office stock, leaving the U.S. energy capital grappling with one of the highest vacancy rates in the country despite calls to “drill, baby, drill.”
More than $450 billion in mergers and acquisitions since early 2023 has led to layoffs, closed outposts and a glut of redundant real estate, Bloomberg reported. As energy firms shrink their office space to boost efficiency, sprawling suburban campuses and aging 1980s towers took the hardest hit. The city’s office vacancy rate reached 27.9 percent the first quarter, second only to San Francisco, according to Colliers.
Ultimately, energy firms are curbing growth projections for a leaner future, with less need for office space.
Meanwhile, Houston’s development pattern compounds the problem. Without zoning restrictions, developers have long favored building on cheap land over retrofitting older space, creating a patchwork of aging, half-empty buildings across the metro. The result is a slow-burn real estate reckoning that can be difficult to see in Houston’s decentralized landscape but has become increasingly difficult to ignore.
The energy industry has “become a much more efficient occupier of office space,” said Louis Rosenthal of JLL. “We’ve seen this happen over and over again, and I don’t think it’s going to stop.”
Among the most visible fallout: ConocoPhillips is looking to sell Marathon Oil’s 15-story Houston headquarters just three years after it was built. Southwestern Energy’s twin towers in Spring are partially vacant following its $7.9 billion merger with Chesapeake Energy. And Devon Energy is closing its Houston office after acquiring Grayson Mill in a $5 billion deal.
The real strain lies in Houston’s vintage inventory. Cushman & Wakefield estimates about 30 percent of offices from the 1980s are in financial distress. That includes properties like the TC Energy Center, a granite-clad relic of the oil boom being repositioned with creative office and amenity space. Its value fell from $403M to $284M in five years.
Exxon’s “White House” was demolished in June, with a raffle granting a winner the honor of pushing the button.
Though newer Class A space is still in demand, older towers face a murky future.
“Many of the buildings that have been perfectly good buildings are going to fade into the dark, and somebody’s going to lose money on that,” said Cushman’s Eric Siegrist.
— Judah Duke
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