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Market Research - Houston

United States: Houston office market - H1 2021

Investment volume ticked up modestly over the second quarter despite remaining well below historical averages due to the pandemic.

Office market conditions soften through mid-year

The Houston metro office market saw market conditions continue to soften through mid-year. Over the quarter, direct vacancy and total availability increased, asking rates were flat, and absorption remained in the red. 
This marks six consecutive quarters of negative absorption for the office market. Class B properties led to the negative metric as Class A ended the period with 49,000 SF of positive absorption. 
Total Availability increased 50 basis points (bps) over the quarter as energy-related service firms added several large blocks to the sublease market.
These spaces are predominately located in Class A properties, resulting in a 60-bps increase in availability for the asset class over the quarter. 

Vacancy and availability continue upward trajectory

Over the second quarter, the direct vacancy increased 20-bps across all classes of space to 20.2%, increasing by 190-bps year-over-year.
Class A vacancy saw an uptick of 10-bps over the quarter while class B properties saw vacancy increase 20-bps over the quarter to 21.0%.
Across all classes of space, 21 of the 32 reporting submarkets registered increases in vacancy. 
The San Felipe/Voss submarket recorded the largest increase in vacancy over the period, increasing by 230-bps. This fallout occurred in the Class B market and was driven by Crown Castle vacating 80,000 SF at 1220 Augusta to move into its recently delivered build-to-suit in the Katy Freeway East Submarket.

Transaction pace begins to rebound

Investment volume ticked up modestly over the second quarter despite remaining well below historical averages due to the pandemic. 
Market demand remains intact for strategically located assets with elevated vacancy from both investors and users looking to lock in quality facilities at reset valuations. 
Representative of this demand, several properties changed hands over the quarter. Among notable transactions from an investment perspective, CP Group acquired Five Post Oak Park, a 67% leased, Class A office tower in the West Loop market, from Shorenstein Properties. On the user side, Harris County leveraged favorable conditions to acquire 1111 Fannin St, a 428,000 SF Class B facility with availability of 89.0% from Taconic Capital Advisors.

AAG Houston office market H1 21
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