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Houston Office Space For Rent

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Houston Office Space for Rent

The Houston office space market is among the nation’s largest. By total square footage, it is the sixth largest in the country, only trailing New York, Washington DC, Chicago, Los Angeles, and DallasFort Worth.

Houston’s strong local economy (3.8% unemployment in November 2018) and friendly tax rates have long been attractive to a range of businesses, from global energy firms to tech startups. While the energy industry reigns supreme (around 40% of the economy), a large portion of the remaining Houston office space market is occupied by technology, shipping, biomedical research, aeronautics, manufacturing, healthcare, e-commerce, and media companies.

The city’s $53,800 mean salary, coupled with Texas’ lack of a state income tax and Houston’s favorable cost of living compared to similar-sized metro areas, has made it increasingly popular for transplants. According to Census data, from 2011 to 2015, Houston ranked among the top three cities for annual numeric growth, gaining more than 30,000 new residents each year. Most of that growth came from people relocating to Houston. This population growth has closely tracked local employment numbers, and slightly slowed in 2016 with the drop in oil prices.

 

Houston Office Space for Rent | Average Cost per Square Foot

Class A
Class B
Downtown$45/sf$30/sf
Midtown$33/sf$29/sf
Energy Corridor$34/sf$21/sf
Galleria$38/sf$28/sf
Medical Center$33/sf$28/sf
Northwest Houston$26/sf$20/sf
Sugar Land$29/sf$23/sf
The Woodlands$32/sf$28/sf

 

A direct lease of office space in Houston (across the Metro area) costs an average of $29 per square foot, with office space in Class A buildings renting for an average of $35 per square foot. Office sublease prices are generally lower than a direct lease. Pricing will vary significantly by neighborhood, building class, and lease terms.

According to 2018 industry data, Houston has nearly 185 million square feet of office space with an average vacancy rate of nearly 25%. Nearly 2 million square feet of office space is currently under construction, all in either Downtown Houston or the Woodlands.

Houston Commercial Real Estate | Key Terms

Class A Office Space: Class A buildings are typically the newest, most modern, and most expensive spaces on the market, with a full slate of amenities. As a result, the tenants leasing Class A office space tend to be well-established, industry leaders. Large financial institutions, ad agencies, law firms and tech giants typically occupy Class A spaces. Common amenities include on-site building management and security, lobby attendants, modern HVAC systems, high-end IT infrastructure, and covered parking.

Class B Office Space: What you may sacrifice in amenities and flash, you can make up for in price without having to sacrifice on location, accessibility and overall functionality. Class B offices with reputable landlords and property managers are excellent options for businesses focused on substance over style.

Vacancy Rate: Calculated as the amount of square footage available for lease divided by total square footage in the market or submarket, vacancy rate gives insight into how tight the competition is for space. Tighter competition usually means higher prices and fewer concessions from landlords.

Inventory: The total amount of square footage in the market or submarket.

 

Leasing Options for Houston Office Space

When starting a search for office space in Houston, it’s important to understand what’s available, and the advantages and drawbacks of each type of lease.

Traditional Office Space for Rent in Houston

 The majority of businesses are best suited finding a traditional office space for rent. It’s a place for your team to call home, and customize to align with your brand. However, smaller and earlier-stage businesses may struggle to find a traditional office that fits their needs due to size and lease duration commitments.

Advantages: Work directly with a landlord, privacy, customizable with a tenant improvement allowance.

Drawbacks: The typical lease commitment is 3-5 years. Limited options for businesses with fewer than 10 employees.

 

Houston Office Sublet

The biggest recent change to the Houston commercial real estate market was the increase of spaces available for sublease. This subset of the market grew by more than 1 million square feet, and totaled its highest amount since Q4 2016. Most sublease space is in Class A buildings located in Houston’s top submarkets, and is already built-out and furnished.

If you’re a fast-growing company, a sublease is a less significant commitment than a traditional lease. Conversely, businesses can lease a larger space and sublease a portion to offset the costs until their team has grown (see office sharing below).

Advantages: You can sublease Class A office space for much less, with more flexibility on lease duration. Spaces are already built out and furnished.

Drawbacks: The previous tenant is your “landlord,” rather than a professional property management firm or landlord, limited employer branding opportunity, can’t make changes to the space to accommodate your needs.

Houston Coworking or Shared Office Space

The most significant trend in the global and Houston commercial real estate market is the rise of coworking and shared office space. While these options existed long before the recently notable players in the industry, market demand for flexibility and turnkey office setups has skyrocketed. While these options alleviate the mental energy of office maintenance, these are not always the most cost-friendly option. However, for many, coworking space or part of a shared office are a perfect option for a business’ first office.

Advantages: Offset office infrastructure costs (office management, cleaning, receptionist, coffee, wifi, etc.), lease flexibility.

Drawbacks: Lack of privacy, no employer branding, convenience can come at a very steep price.

 

Houston Office Space for Rent | Popular Submarkets

Downtown Houston

The Downtown Houston district covers just under two square miles but is home to the city’s best-known attractions and entertainment hubs like the Theater District, Minute Maid Park, Toyota Center, Discovery Green, and Market Square Park. Companies in the energy sector will find themselves working alongside the corporate offices of Shell Oil Co., Calpine, Dynegy, and Total Petrochemicals USA. Downtown Houston is also the city’s civic center, so companies seeking proximity to City Hall and the courthouses should check out Houston office space. Six major freeways lead to Downtown Houston, and there are plenty of public transportation options as well.

Businesses looking for space near Downtown Houston without quite as much hustle and bustle may be interested in Montrose, an offbeat neighborhood known for its eclectic culture, varied dining options, murals, and exciting architecture.

Midtown Houston

Directly southwest of Houston CBD, Midtown is a favorable area for legal, insurance, and real estate offices as well as software developers and companies in the Technology, Advertising, Media, and Information sector. A growing number of co-working spaces in Midtown have made the neighborhood increasingly attractive to entrepreneurs and startups. The METRO Red Line runs has three stops along Midtown’s Main Street, and 30 bus routes serve the area.

Houston Galleria

Galleria is a mixed-use urban development centered around the upscale shopping mall of the same name, The Galleria. The Galleria has three main office buildings with approximately 1.1 million square feet of office space between them: the Galleria Financial Center, Post Oak Tower, and the Galleria Tower. Financial institutions such as Citigroup Merrill Lynch have office space in the Financial Center, as well as many law offices, financial services companies, and energy trading companies. The abundance of dining options in the mall and the presence of two Westin hotels next to the office towers makes Galleria an ideal location for companies who host regular business guests. Get to Galleria via West Loop South, or take a bus or the Green Line.

Houston Heights

Houston Heights is a short drive northwest of Downtown Houston known for its boutiques, mom and pop shops, unique architecture, and quaint character. At slightly less than $24 per square foot, local office space is nearly 25% below the citywide average.

Energy Corridor

Houston’s Energy Corridor includes Katy Freeway West, Katy Freeway East, and Westchase. Average office space in the Energy Corridor matches the city average, but Katy Freeway East has prices closer to $34 per square foot. Prominent companies with office space in the Energy Corridor include Citgo, Dow Chemical, BP, ExxonMobil, and Foster Wheeler. Legal and financial services are also standard commercial tenants in the area. Aside from the Katy Freeway, other expressways that reach the Energy Corridor include the Loop, the Northwest Freeway, and Sam Houston Tollway. METRO bus line 75 is known as the Energy Corridor Connector, and many public transit options are available at the nearby Addicks Park & Ride.

Greenway Plaza

Greenway Plaza is a mixed-use development located in the Inner Loop of Houston, approximately five miles west of the CBD. Considered one of Houston’s largest business districts with nearly 10 million square feet of office space, Greenway Plaza is home to major commercial tenants including various petroleum distribution and energy companies along with insurance, investment management, and software and data services. The exit to Greenway Plaza is off of I-69. A handful of bus lines service the area, and connections to the Red Line and Purple Line cover a portion of the commute.

Texas Medical Center

The Texas Medical Center (TMC) in Houston is the most extensive medical center in the world and employs over 100,000 people. Within the Texas Medical Center are 21 hospitals, eight academic institutions, a startup accelerator, and close to 50 other related organizations. Office space surrounding the Medical Center neighborhood is ideal for life sciences and medical technology companies. Located three miles south of Downtown Houston near the intersection of the South Freeway and the Old Spanish Trail, it takes less than 15 minutes to drive to TMC with light traffic. The Red Line and multiple buses go to TMC, and the campus has its own privately run streets, transit, and parking.

Greenspoint/North Belt

Greenspoint has 9 million square feet of office space at some of the lowest prices per square foot. The Greenspoint business district covers seven square miles and provides office space to approximately 3,000 companies. Energy and shipping are the two most prominent industries in Greenspoint. George Bush Intercontinental Airport is only a few miles east of Greenspoint off of Hardy Toll Road. Drivers can access Greenspoint via the North Freeway or Sam Houston Tollway, and the Greenspoint Transit Center operates four bus lines.

Southwest Houston

Southwest Houston is roughly defined by the area below Katy Freeway and between the Sam Houston Tollway and Highway 6. One of the most diverse neighborhoods with robust Jewish, Hispanic, Asian American, and Indian communities, most people who work in Southwest Houston also live there. Electronics, manufacturing, oil, and healthcare management services are the leading industries in the area. Commuters have access to multiple METRO Park & Ride locations in the area.

Sugar Land

Sugar Land was founded as a sugar plantation but is now a city within the Houston metropolitan area and is one of the fastest growing cities in Texas.Outlook Magazine and Texas Business both designated Sugar Land as one of the Top Cities in Texas for business expansion. Based on recently commercial real estate leasing data, there is more than 4 million square feet of office space inventory, renting at an average of slightly below $27 per square foot, with the 3 million square feet of office space in Class A buildings renting for around $32 per square foot. Class B office space in Sugar Land can be found for around $22 per square foot.

Spring, TX

Spring is around 25 miles north of Downtown Houston, and presents affordable, quality options for businesses to lease. Asking rents for Class A offices hover around $30 per square foot, while Class B offices lease for closer to $22 per square foot. Spring has a vacancy rate of around 18%, slightly lower than the citywide rate.

 

Houston Office Space Trends

2019 Outlook: According to a report from Jones, Lang LaSalle, in the second half of 2018 the Houston office space vacancy rate fell by nearly 30 basis points, ending a multi-year stretch of rising vacancy rates. Q3 also saw an increase in net absorption and office sublease activity. While some of this was driven by ConocoPhillips moving into a new 600,000 square foot office in the Energy Corridor, these are still leading indicators of a healthier commercial real estate market and local economy. Despite the healthy trends, the office leasing market still leans heavily in the favor of tenants, and should remain that way through most of 2019.

July 2018: Houston office space leasing activity has been relatively slow the past three years. This subdued leasing activity coupled with rising vacancy rates has pushed down rental rates. Since January 2015, Houston has only seen two out of fourteen quarters with more than four million square feet of leasing activity. For comparison every quarter from Q3 2011 to Q4 2014 saw more than four million square feet of leasing activity. Since 2014, citywide office space vacancy rates have climbed from nearly 13% to the 25% we currently see.

Houston Local Market Update

Houston’s office market is typically dominated by changes in the oil and gas industry. Since the beginning of the year, WTI Crude has rallied from a low of $46.31 to $58.91 as of the end of May 2019. During this time, one of the biggest news items in the energy sector was the bidding war between Chevron Corporation (NYSE: CVX) and Occidental Petroleum Corporation (NYSE: OXY) over Anadarko Petroleum Corporation (NYSE: APC), headquartered in The Woodlands.

Oxy won the bidding war to purchase Anadarko on May 10th, 2019, announcing the $57 billion cash and stock transaction. The combined company would control the largest share of the Permian Basin. Oxy management expects $2.0 billion in annual cost synergies from combining the two companies. Cost cuts to get to the $2.0 billion number will be achieved in three ways, according to Cedric Burgher, CFO of Oxy. The first is by reducing well costs using Oxy Drilling Dynamics. The second is by scaling procurement and supply chain to achieve better input costs in the Permian Basin. Finally, the third is by streamlining general overhead and corporate costs, including consolidating headquarters.

Anadarko currently employs 2,000 employees at their corporate headquarters in The Woodlands, while Oxy set up its headquarters in Houston in 2014 and employs approximately 3,000 Houstonians at 5 Greenway Plaza. Oxy purchased the former ConocoPhillips headquarters (located in Energy Corridor) in 2018, with the plan to consolidate corporate operations on one campus. Cost cuts could see Anadarko’s headquarters put on the block, bringing significant vacancy to The Woodlands submarket. Anadarko currently owns three buildings in The Woodlands at 1201 Lake Robbins Drive, 9950 Woodloch Forest Drive, and 1200 Timberloch Drive, totaling almost 1.6 million square feet of office space.

Getting Around Houston, TX

Houston loves to drive, and 90% of the workforce commutes with a car. To avoid heavy traffic on the Loop or the Sam Houston Tollway, many Houstonians live and work in the same neighborhood or live within a 30-minute drive to work. Nearly 50 car shares operate within Houston, and taking a taxi anywhere within the CBD only costs a $6 flat fare.

Houston’s METRO has 28 Park & Ride lots throughout the city that provide convenient connection to over 50 bus lines as well as the Red, Green, and Purple light-rail lines. Expansion and improvement of the light-rail system are METRO’s primary goals.

Walkers and bikers will find they have an easy time getting around Houston CBD. In addition to greenery-filled streets, Houston has an underground system of tunnels that spans six miles and connects 95 city blocks. The tunnels house everything from banks to dry cleaners, as well as plenty of shops and restaurants. The tunnels also make it easy for the downtown office population to avoid the summer heat. Back above ground, Houston has a bicycle sharing system called Houston B-Cycle. The city currently has 160 miles of dedicated bikeways.

Business Travel to and From Houston

Houston has two major airports that make flying in and out of the city a breeze for frequent business flyers. The George Bush Intercontinental Airport (IAH) is one of the country’s busiest international airports and is located to the north of Downtown Houston. The William Hobby Airport lies to the southwest.