There is market growth, but in office space...not so much.
That’s the assessment of John Phelps, President of Phelps Commercial Realty in the Galleria area. He works with the medical professional side of commercial real estate. Phelps says everywhere you look, especially in Houston’s outer burbs, shops and strip centers are popping up everywhere with a variety of businesses. But office properties are in remission.
“Retail space has picked up dramatically over the past six or nine months,” Phelps tells KTRH News. “There is a much higher demand all throughout Houston for new retail space for new businesses. That industry has bounced back quicker than the office space market has.”
The Wall Street Journal recently pegged US office occupancy levels at about 36% of what they were pre-pandemic. Once remote work became standard there has been no going back to the old model for those businesses that have been able to adapt. Phelps says downtown Houston is still a fraction of its former self. With all the recent news about businesses like Tesla and Oracle moving their headquarters to Texas, if your thinking remains in the old paradigm, you’d expect a flurry of office construction. But people aren’t working in office spaces like they used to; however those workers do go to grocery stores and restaurants, and dentists, doctors and veterinarian offices, and it’s that retail side that is booming.
“There’s a lot of retail development being built in Houston as well as in the suburbs, and that’s very strong. But on the office side, it’s lagging considerably,” Phelps adds.
He expects established office buildings to rethink their business model, lowering rents in what has become an extremely competitive market. A Class-A office space isn’t worth the high profile cost if clients aren’t coming to be impressed.
photo: Getty Images