Owner occupants are a bright spot in Houston’s battered office market.
Net absorption rose for a second straight quarter, vacancy dipped slightly, and a string of massive owner-user deals removed more than 2 million square feet from the market this year, according to an analysis produced by Partners Real Estate and first reported by Bisnow.
The metro logged 654,000 square feet of positive absorption in the third quarter, up from 415,000 square feet from the previous quarter, while vacancy ticked down to 26.3 percent.
Leasing and renewals totaled 2.7 million square feet. The fourth quarter started with a splash: the city of Houston’s $50 million purchase of the 51-story former Continental Airlines headquarters downtown at 1600 Smith Street.
That 1.1 million-square-foot acquisition will consolidate several city departments — including the police and public works — and relieve the city of two aging buildings on Travis and Walker streets, which officials plan to sell.
“If it wasn’t for the distress we’ve seen, with lower valuations, a purchase like that maybe wouldn’t have occurred,” Partners Real Estate’s Dan Boyles told the outlet. “When there’s low valuations, that helps justify a purchase in lieu of a lease.”
Owner-user deals — meaning deals where the business using the space buys the property rather than leasing it — have boosted Houston’s sluggish office sector, where depressed values make buying more appealing than leasing.
In April, Dallas-based Energy Transfer acquired the 1.2 million-square-foot tower at 5555 San Felipe Street, which Starwood Property Trust had foreclosed on in 2022 after Marathon Oil vacated.
The pipeline giant will relocate from its 510,000-square-foot headquarters at 1300 Main Street, which it plans to sell. The move doubles its footprint and fills a tower that was barely 30 percent leased.
Despite the encouraging metrics, Boyles cautioned that Houston’s office rebound still hinges on corporate growth and expansion — not just occupancy shuffling.
“The real needle movers are when companies are expanding and growing into new space,” he said. “We haven’t seen a lot of that.”
Still, activity is stirring. Among the quarter’s largest leases were Seadrill’s 69,000 square feet at Westway III, Adtalem Global Education’s 31,000 square feet at Two Westway and Clifford Chance’s 60,000-square-foot move into Texas Tower. Partners noted that smaller tenants are increasingly driving demand, even as large corporations remain cautious.
— Eric Weilbacher
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