Houston office sublease market stabilizes, but huge blocks remain available

Although available office space for sublease in Houston has fallen to one of its lowest points since 2018, there are still 10 office buildings with sublease blocks of at least 90,000 square feet available, according to a Savills report.

Energy Center V in Houston, which has 100,000 square feet of sublease space available.

Houston had about 5.4 million square feet of available sublease space in the last quarter of 2023 and the first quarter of this year, according to the report. That’s down from more than 8 million square feet available in 2018. The only time since then that availability has been lower than the last two quarters was in mid-2020, data shows .

Decreasing availability is starting to align with pre-pandemic levels and shows that Houston’s office sublease market is stabilizing, said Savills Chief Executive Alecia Schneider.

“Subleasing is an indicator of the health of the office market,” Schneider said. “It’s an easy out, low-hanging fruit.”

Houston’s sublease space now represents less than 10 percent of Houston’s overall office availability and compares favorably to other major Texas metros, according to Savills. The 5.4 million square feet in the first quarter represented a little more than half of the 9.8 million square feet available in Dallas, where sublease deals accounted for 15% of the city’s office availability. Austin has about 5 million square feet of subleased space, or 24% of the city’s office availability.

Sublease transactions are faster than traditional office leasing because spaces are typically move-in ready, providing more options for tenants who need space quickly and inexpensively, Schneider said. The speed is also beneficial for subleases who need to offload space, she said, adding that’s why there has been an increase in sublet space. rental available following the pandemic.

This increase peaked at more than 8 million square feet in the fourth quarter of 2022, the report said. However, despite recent stabilization, many large blocks of sublet space remain available.

The largest share comes from oil and gas drilling company NOV, which has about 400,000 square feet available in the Parkwood Circle building and two other buildings at West Belt Plaza, all in southwest Houston, according to the report. NOV listed the space, formerly its headquarters, for sublease last year after consolidating its office footprint and moving into Millennium Tower II at 10353 Richmond St., the Houston Business Journal reported.

All NOV buildings available for sublease are Class B and built in the early 1980s, consistent with the type of office park Houston office experts say holds a disproportionate share of vacancies and maintains the city’s static vacancy rate higher than other comparable office markets. NOV’s leases do not expire until 2037, according to the Savills report.

Other large portions of the subleased space include the fourth through 10th floors of 1725 Hughes Landing Blvd. in The Woodlands, which is 206,000 square feet. This space was listed by Exxon Mobil Corp. and has been on the market the longest, 31 months, according to the report.

The other oldest sublease spaces are Cheniere Energy’s 189,000 square feet at the North Tower downtown, which has been on the market for 22 months, and McDermott International’s 100,000 square feet at Energy Center V in the Energy Corridor, which has been on the market for 19 months. month.

It typically takes six to 18 months to fill a large subleased space, Schneider said.

Of the city’s 10 largest sublease blocks, six were owned by energy and utility companies, the report said. That’s not counting McDermott International, an engineering and construction company for the energy sector.

The clustering of spaces in the energy sector could be a coincidence or a reflection of the size of that market in Houston, Schneider said. Houston’s energy sector and office market have largely recovered and stabilized, and the large portion of subleased space reflects more efficient use of office space, she said.

“Subletting is the discount market. It’s the sales market because (you get the space) at a fraction of the cost,” Schneider said. “So it’s an opportunistic market. You don’t really want to see a 0%. You want some sublease availability in there.