Houston Office Investment Forecast
High Vacancy Does Not Dissuade Investors Seeking Office Properties with Elevated Risk-Adjusted Returns
Houston office market grapples with supply overhang. Entering the year, the metro had the highest office vacancy in the nation due to the impacts of the pandemic, development and challenges to the energy sector during the global economic shutdown. Although availability is elevated, the market's equilibrium level is generally higher than the national average due to less-expensive holding costs. This year will mark a turning point in the office market. Development slows significantly from last year's pace, and less than 500,000 square feet of speculative space will come online. The largest project slated for completion is Hewitt Packard's 440,000-square-foot headquarters in The Woodlands. On the energy sector front, a decline in production is limiting demand for Houston office space. In late 2021, the number of rotating rigs was still more than 25 percent below the pre-health crisis level, though it was trending higher. Demand is rising worldwide for fuel, but the current regulatory environment discourages major investments in new projects.