In a reversal of course, Houston saw positive net absorption of 496,971 sq. ft. in the fourth quarter. Still, this was not enough to turn the tide for the year and Houston finished 2018 with a net negative absorption of 1.3 million sq. ft.
Over 1.3 million square feet of sublease space expired and rolled vacant this year. Sublease space converting to direct vacancy has put downward pressure on asking rates which dropped from $29.41 in Q4 2017 to $29.04 in Q4 2018.
The Houston office market vacancy rate has seen an increase of 140 bps from 17.3% in Q4 2017 to 18.7% in Q4 2018.
Houston’s construction sector had a healthy fourth quarter delivering 704,800 sq. ft. of new office space. With deliveries totaling 1.2 million sq. ft. for the year and another 2.2 million sq. ft. under construction, tenants are continuing to show their preference for newly constructed Class A properties.