HOUSTON – The local office market kicked off 2023 with two large deals in the Katy Freeway West submarket, reports JLL in its first quarter 2023 market report.
MODEC inked 116,000 sf at West Memorial Place I, relocating from Energy Crossing II. Kiewit expanded its current lease at Energy Center I and added 106,000 sf to its current 171,300-sf space.
West Houston, including Katy Freeway East, Katy Freeway West and Westchase, accounted for 48 percent of total transaction volume in 1Q2023.
Despite large deals, the office market continued to see weaker overall transaction activity amid economic uncertainty. Leasing activity was 41 percent below the five-year quarterly average as companies took a conservative approach to start the year.
The market had a fourth consecutive quarter of occupancy losses with -221,183 sf of net absorption. Total vacancy increased 50 basis points year-over-year, recording 25.6 percent in the first quarter.
However, as companies continued to seek high-quality space with modern amenities, office space experienced further bifurcation between new and old product. Newer buildings (Class A, post-2014 construction) posted a net occupancy growth of 171,417 sf and a 13.4 percent vacancy rate.
With no new buildings breaking ground this quarter, construction activity remained flat at 878,017 sf with 50.3 percent preleased. Rising construction costs and escalating interest rates are likely to be an obstacle for new construction plans for proposed buildings throughout 2023. As some office employers continued to embrace hybrid work schedules and reevaluate their extra space, sublease inventory climbed to eight million sf, up 20.5 percent year-over-year.