Office building leasing is slowing down in Houston Texas ever since Enron crisis.

February 7, 2017

Houston's office market woes harken back not to the Great Recession, but to the years following Enron Corp.'s scandal and bankruptcy in the early 2000s, said CBRE's Lucian Bukowski, executive vice president with the firm's occupier team.

"The financial crisis (in 2009) really didn’t hit (the) energy sector," Bukowski said. "The rest of the country got sick and we got a cough. But, if you look at post-Enron, we had three or four pretty bad years, a big increase in sublease (and) a big increase in availability."

 

Between 2012 and 2015, the energy industry accounted for 52 percent of Houston's office leasing activity, according to data presented by CBRE. Energy usually accounts for roughly 40 percent of Houston's annual leasing volume, Bukowski said. In 2016, though, the industry made up just 18 percent of Houston's office leasing volume.

Roughly 408 office leases were executed in 2016 compared to 659 leases in 2015, per CBRE data. And 8.7 million square feet of office space was leased in 2015. In 2016, 7.6 million square feet was leased.

Interestingly, though, sublease leasing activity sharply increased in 2016. In 2015, brokers executed 39 sublease deals worth 527,000 square feet. The next year, though, 96 sublease deals worth 1.5 million square feet were signed, according to CBRE research.

"High-quality sublease deals stole market share from landlords," Bukowski said.

Experts are predicting that the worst of the oil slump is behind Houston, and that the city's economy will begin to recover in 2018. Bukowski predicts two to three years of relatively flat to negative absorption in the office market, he said, but anticipates a speedier recovery than Houston's post-Enron economy.

"If you compare (activity between) 2000 and 2003 to what we’re seeing now … this event is worse in terms of the amount of sublease space we’re delivering to the market," Bukowski said. "But, I think we will recover faster."

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