West Houston office market’s leasing momentum among top in country, broker says
If you feel like there have been a lot of office lease transactions recently in west Houston, you would be right.
A new report by the Houston office of Chicago-based JLL shows just how much momentum the employment centers on Houston’s west side have had since the end of the pandemic, making the submarket one of the hottest in the country, according to Tyler Garrett, head of agency leasing for JLL in Houston.
In just the past 12 months, there was 3.7 million square feet of leasing activity in the submarkets of Katy Freeway West/Energy Corridor, Katy Freeway East and Westchase. That represents about a third of leasing activity across Greater Houston. In just the past six months, west Houston saw 2.3 million square feet worth of office leases.
And there are some big names among those.
Houston-based Mattress Firm announced in April that it is relocating its corporate headquarters to Westchase, leasing 55,855 square feet in Reserve at Westchase, at 3250 Briarpark Drive.
In November, Apache Corp. (Nasdaq: APA) leased 118,000 square feet to expand its offices in One Briarlake Plaza at 2000 West Sam Houston Parkway in Westchase and make it the Houston-based company’s new headquarters.
Houston-based Baker Hughes Co. (Nasdaq: BKR) announced last August that it would move its headquarters from the Greenspoint area into 130,000 square feet of office space in Energy Center II, at 575 Dairy Ashford Road in the Energy Corridor.
In July 2022, Virginia-based engineering and construction firm Bechtel Corp. announced it will move its local offices from Uptown to Parkway Property’s CityWestPlace campus in Westchase.
And in March of last year, Canada-based energy infrastructure giant Enbridge Inc. (NYSE: ENB) announced it was moving from the Galleria area to the Energy Center Five building at 915 N. Eldridge Parkway in the Energy Corridor.
Other significant company leases in the Energy Corridor in the past year include Fluor Corp. at 737 N. Eldridge Parkway; Fugro at 13501 Katy Freeway; Kiewit Corp. at 585 N. Dairy Ashford Road; and Technip Energies at 15377 Memorial Drive.
As Greater Houston’s population center continues to move northwest, part of this trend has to do with companies moving closer to where their employees live, Garrett said.
More specifically connected to the pandemic and its aftermath, a lot of options became available as companies put their office space on the sublease market in 2020.
“You’ve got this dynamic of employers trying to attract employees back to the office, get them from working from home back into the workplace,” Garrett said. “And so that coupled with energy pricing coming back, and therefore the health of those energy companies getting a lot better, has led to a massive takedown of space in the Energy Corridor.”
The Energy Corridor also benefits from the ongoing flight to quality, he said, because it has a lot of relatively new, high-quality product thanks to a construction boom during the shale revolution a decade ago.
Companies are not just moving here from other submarkets. They are also moving within the Energy Corridor, including Houston-based Diamond Offshore Drilling Inc. (NYSE: DO), which will move to 777 N. Eldridge Parkway from its headquarters of 33 years at 15415 Katy Freeway. Most of the space Diamond Offshore is vacating has since been leased to Hargrove Engineers & Constructors, which itself will be moving from less than a mile away on the other side of Interstate 45, at 16300 and 16290 Katy Freeway.
“It’s been musical chairs,” Garrett said. “You’ve had a lot of tenants scrambling to find their home when initially they thought there were tons of options. And then all of a sudden, those options start getting picked off one by one and it happened very quickly.”
All this activity does not mean, however, that west Houston isn’t affected by the ongoing office downturn. While total vacancy in the three submarkets is coming down and is below Houston’s overall, it’s still high, at 22.8% in the first quarter, according to JLL. And most companies that have signed new leases there are downsizing from their previous offices.
“So when they do make that move, it’s actually a net negative absorption event,” Garrett said “And so the question is, does the growth that we’re experiencing right now outweigh those large pops of net negative absorption when these companies are downsizing by an average of roughly 30% to 35%?”
That said, some companies realize they need more space than they thought they would with more employees working from home and end up expanding their footprint, he said.
Whether the momentum continues will also depend on how much tighter the market will get and whether developers bring new high-quality buildings to the area.
“Right now, there’s a handful of high-quality options available for a large tenant, whereas three years ago, there was 15,” Garrett said. “So I just don’t know if that will continue on a large scale if high-quality options aren’t available.”
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