With “stay home-work safe” orders going into effect at the end of Q1 and continuing throughout Q2 across the country, the future use and value of conventional office space is now facing perhaps its most intense scrutiny ever.
However, most office indicators have shown surprising stability. In Houston, office-using employment, May vs. February, has dropped only 4.5% versus 9.8% for all other industries. Throughout Q2, average rents and collections have been resilient and rent relief very limited.
Oil prices, already volatile prior to the onset of COVID-19, have rebounded since early Q2 when crude prices in the U.S. briefly turned negative, but have not recovered to pre-pandemic levels.
Q2 2020 office market fundamentals have yet to account for the full impact as commercial real estate statistics generally lag real-time economic events, but quarterly net absorption of -1.1 million sq. ft. and vacancy numbers above 21% are already showing effects of the oil price crash and pandemic.
Both Class A and B properties posted negative absorption this quarter, yielding -496,928 sq. ft. and -576,733 sq. ft., respectively.
The construction pipeline totaled 4.7 million sq. ft. at quarter-end with 2 million sq. ft. of that figure attributed to build-to-suit projects.