Trophy assets leading recovery with strong absorption gains

Houston, TX – Avison Young today released its Second Quarter 2024 Office Market Report for Houston. Office market fundamentals are slowly improving as the top end of the market continues to lead in the recovery. The trophy office segment has been performing well, with 778,000 square feet (sf) of positive absorption recorded during the first half of 2024, demonstrating strong demand for high-quality space, with tenants prioritizing modern amenities and functionality.

“Contrary to common opinion about Houston’s office market, the surge in leasing demand for premium spaces experienced during 2023 and the first half of 2024, coupled with a decrease in availability including no new supply being added to the market, has the potential to spur shrinking concessions for tenants evaluating space in the trophy and class A-plus sectors of the market,” said Principal and office tenant representation specialist Anthony Squillante.

Leasing activity in the second quarter of 2024 totaled 2.7 million sf, which remains 36% below the 5-year pre-Covid leasing average. The slower pace in leasing activity has likely been impacted by a more challenging debt and liquidity environment for building owners, preventing larger deals from occurring as easily with their lenders, and the use of hybrid and remote work.

“Landlords are motivated to strike deals, but some are finding it difficult to provide tenant incentives such as improvement packages and rent abatements due to underlying building loans or financial limitations,” said Wade Bowlin, Principal and Managing Director of the firm’s Houston office.

While employment gains are starting to slow down to a more normalized pace compared to the rapid rebound experienced in years immediately following Covid, Houston’s economy remains strong with nearly 90,000 jobs created over the trailing 12 months ending May 2024. Further, the unemployment rate in the Bayou City remains relatively low at 4.0%.

Finally, the report shows that energy-related firms continue to dominate leasing activity, accounting for 30.6% of the leasing activity to date.