Developers have built far too much, and now office vacancies are higher in Texas’ major metros than they are in coastal cities like New York and San Francisco.
The Wall Street Journal reports that Houston, Dallas and Austin top the list of major U.S. cities with the highest office vacancy rates. Even as people on the coasts migrate to Texas, the cities they leave behind still don’t have the number of offices sitting empty as seen in Texas.
It’s a trend that’s holding up even as Texas workers are returning to the office after the pandemic at higher rates than those in other states. According to data from Kastle Systems, which measures occupancy by counting keycard swipes, Houston, Dallas and Austin have the highest office-return rates in 10 major metro areas.
But that doesn’t mean work from home isn’t a factor. The Journal reports that many companies signed long-term leases, and as those contracts expire, vacancies could increase if they eventually opt for remote work.
Houston’s office vacancy stands at 26.4 percent, economic research company Moody’s Analytics notes. It’s a rate highest among 79 markets, behind only Charleston and Dayton, markets that are puny compared to the Bayou City. New York, for example, had a vacancy rate of 12 percent in the third quarter while San Francisco’s was 17 percent, the Wall Street Journal reported, citing data from Moody’s.
On top of overdevelopment, Houston’s vacancy rate has shot up in recent years because much of the local economy is devoted to energy. Oil prices crashing in 2014 meant lower demand for office space. As a result, vacancies went from 14.9 percent in late 2014 to 23.5 percent in late 2019.
Once highly desirable spaces are now seeing their worth plummet. Houston’s Greenway Plaza office complex saw its estimated value cut by more than half to $425 million, down from $1 billion in 2017, according to Trepp data. The office complex was 34 percent vacant as of September, an increase from 12 percent in March 2022.
Similar vacancies are hitting Downtown Austin and the city’s other office hub in North Austin, the Domain. This past spring, Austin offices saw the highest vacancy rate since the Great Recession. It has only increased, hitting 24.2 percent in the third quarter.
In recent years, big players in the tech industry were charmed by Austin. Employees were wooed by the greater affordability compared to Silicon Valley, and Gov. Greg Abbott appealed to companies with talk of fewer regulations. Giants like Meta prepared to bring in employees to grand office spaces the sector is known for, with perks including laundry services and free haircuts.
But some companies have walked back on their planned leases amid cost-cutting measures. In August, Indeed decided to put its Domain office building up for sublease, following Meta, TikTok and 3M that also no longer wanted additional space for their employees. The Austin Business Journal reports that across the city, companies have put up more than 6 million square feet up for sublease.
Even outside of the office, Texas could start shedding people that rushed to move here. Californians that were once satisfied with a move to Texas are thinking of returning to the West Coast after experiencing the heat and traffic in the state.
With office buildings that are ghost towns and fans of In-N-Out going back to where they came from, Texas still shows signs of economic health and booming cities. The state’s population passed the 30 million mark in 2022 and preliminary estimates show the state’s economy grew to an estimated $2.36 trillion last year.
Source : CHRON