Landlords in Houston and Dallas are having a tougher time filling their empty office buildings with new tenants than any other market in the country, according to office market statistics compiled by CoStar and JPMorgan.
Why? One reason: They overbuilt when interest rates were low.
Houston and Dallas put up more new office space between 2010 and 2021 than all regions except New York. Despite the disruptions of the pandemic, they still have millions more square feet under construction. Vacancies now are higher than any other metro area, despite attempts to fill the gaps with heavy discounts.
Houston and Dallas had 18.8% and 17.2% of office space sitting empty at the end of 2022, according to the figures from CoStar and JPMorgan, well above the national average of 12.5%. New York, San Jose, San Francisco, and Chicago had vacancy rates of 12.3%, 12%, 16.4%, and 15.1%, respectively.
Where Houston and Dallas perform better than other big cities is convincing employees to return to their offices instead of working at home. Worker attendance in buildings monitored by Kastle Systems was more than 60% in Houston and more than 50% in Dallas during the week ending April 5. Those were higher than New York, Chicago, San Francisco and San Jose.
The challenges of these two cities illustrate the uphill climb facing even the strongest commercial real estate markets as landlords struggle to adapt to hybrid work arrangements and rising interest rates. Office space is sitting empty across the country as borrowing costs rise, building values drop, and bank lending standards tighten.
And all of these pressures give landlords even less room to breathe as they try to refinance a mountain of loans. In Houston, roughly $1 billion in outstanding commercial mortgage backed security loans secured by office properties are coming due this year, according to data from CoStar. Dallas has $334 million in such loans maturing by the end of 2023 and another $797 million in 2024.
No comments:
Post a Comment