Availability & Vacancy Edge Downward in Final Quarter
Houston’s office sector saw tenants take down nearly 175,000 SF of net absorption for Class A space as large leases were signed across the metro, while Class B space witnessed large move outs leading to approximately 150,000 SF of negative growth. Net demand in Katy Fwy/Energy Corridor reached nearly 300,000 SF as several leases totaling were signed. Sizeable leases contributed to a decrease in overall availability by 50 basis points to 26.7%, while vacancy remained steady at 20.8%.
Metro Houston is forecast to add 71,200 jobs next year and finish 2025 with over 3.5 million full-time jobs, a total employment count that is a new record. Health care and construction industries are expected to advance the farthest, while professional and technical services, government, and restaurant and bars are also expected to realize significant gains.
Vacancy Shrinks Led by Northwest and South Houston Submarkets
Houston’s office market witnessed overall competitive space being actively marketed over the fourth quarter. Class A space experienced a decline in availability of 1.0% to 27.4% while Class B space saw an increase of 40 basis points to 26.1%. Overall direct vacancy in Houston’s office market remained steady at 20.8% over the quarter, ticking up slightly by 20 basis points year-over-year.
Class A and B full-service asking rates increased by 1.7% to $34.97 PSF during the fourth quarter. Increased operating expenses led mostly to the rise in rates across the board. The Woodlands experienced the largest increase in full-service asking rates for Class A and B space, climbing $9.37 PSF over the quarter from $32.12 PSF to $41.49 PSF as several buildings with previously withheld rates added asking rates to their listings.
REITs and Private Investors End 2024 With Net Portfolio Gains
International, institutional, private investors and REITs were all active participants in property trades during the fourth quarter. Private investors were the only group to finish the period with net positive investment activity totaling $158.5 million in acquisitions and ending the year with $423.2 million in net holdings. REITs disposed of $7.7 million in net holdings during the quarter, bringing their 2024 investment portfolio to $3.1 million in net acquisitions.
International and institutional investors were net sellers in the fourth quarter. International investors disposed of $64.2 million in net holdings over the last 90 days bringing their estimated 2024 portfolio to $148.5 million in net trades while institutional investors sold a net total of $49.5 million bringing their 2024 portfolio to $260.6 million in net dispositions.
