Latest Quarterly Snapshot

The Houston office market has experienced mixed trends in recent months, influenced by factors such as the ongoing recovery from the COVID-19 pandemic, shifts in demand for office space, and economic conditions. Despite experiencing negative net absorption in the 3Q23, the market rebounded with positive absorption in both 4Q23 and throughout 2023. The market continues to be shaped by evolving workplace dynamics, including remote working trends and changing tenant preferences. For example, numerous companies have downsized their businesses in recent years, only to realize that they may have cut too deeply. These tenants are now actively seeking additional space and are anticipated to engage in further transactions in 2024. As Houston navigates through the recovery phase, stakeholders in the office market must remain vigilant and adaptable to emerging trends and opportunities.

The Houston land market was robust in 3Q23 as developers continued to sell sites for master planned communities and commercial development, while speculative land investors kept buying well-placed, large, strategic land tracts. Single-family home sales across the market fell by 10.9% in September 2023 with 6,886 units sold compared to 7,728 units sold in September 2022. Continued market pressure from high interest rates artificially suppresses home sales, and is putting significantly more pressure on commercial real estate transactions for buyers using traditional financing sources. As we head into 4Q23, we expect land sales to continue primarily for residential development with less land trading for commercial development.

The resiliency of the Houston retail market is being tested while absorbing the three-year high of new supply and dealing with an uncertain economy. A total of 4.5 million SF of new supply was delivered to the Houston market in 2021 and 2022. In 2023 the new construction pipeline expects to deliver approximately 4.9 million SF. Furthermore, the vacancy rate of 4.9% remained unchanged in 3Q23. The lack of construction in 2022 is a leading cause of the current vacancy rate. However, with most of the current new construction to be completed by the end of 2023, we forecast the vacancy rate to level off over the next few quarters.