By the end of March 2020, about 24% of Houstonians were scanning into their workplaces using a key card or similar technology, according to Kastle Systems, which offers managed security services to more than 40,000 businesses nationwide. A year later, that number was up to about 39%, meaning more than 6 in 10 office workers in the Greater Houston area continue to work remotely.
“People want to return to a work environment that they feel is safe, and so I think people are just more cautious until the vaccine gets fully rolled out,” said Mike Slauson, a Houston-based general manager with Kastle Systems.
Commercial real estate experts said they expect to see an uptick in Houstonians returning to in-person work as the spread of the coronavirus diminishes. But after months of using remote collaboration platforms, that return will likely look different than it did prepandemic.
Miranda Hadamik, senior vice president of investment and operations at Caldwell Cos., said she believes a portion of the workforce will seek to work closer to home—whether from a coworking site or one of the many new local office condos.
“We did a worldwide test run of working from home, and I think now people know if that works for them or if it doesn’t,” Hadamik said. “Employers can make those informed decisions and create solutions. People can figure out how to have that flexibility and that work-life balance where you’re spending more time at home than commuting.”
Even before COVID-19, experts said office vacancies in Houston were notably high due to overbuilding for the energy industry before the 2014 oil and gas downturn. From the first quarter of 2016 to the first quarter of 2021, office vacancies in the Katy area grew from 10.3% to 16.5%, according to Caldwell Cos.
Once the pandemic hit, Rick Ellis, vice president of the Katy Area Chamber of Commerce, said many people realized they do not have to be in an office to work. As people have adjusted to Zoom, virtual webinars and remote setups, some report feeling more productive working at home.
Others, however, miss the human-to-human connection and are jumping at the opportunity to return to an in-person work setting, Ellis said, something he predicts will continue as vaccination rates increase.
Ultimately, Ellis said he expects many people will resolve to working part time in the office and part time at home even after the pandemic ends—a shift that already is and will continue to have an impact on office vacancies in the area.
“As people do stay home, the need for the office spaces overall is understandably going to shrink,” he said. “And I think those changes are going to stay.”
State of the market
Colliers Houston President Patrick Duffy said before the pandemic, Houston had the highest office vacancy rate of any major city in the U.S., largely due to a rush in construction to accommodate upstream energy companies expanding from about 2010-14.
“We build whole buildings for these large companies, and then the crash hit, and they never even took up occupancy; they just dumped it in the sublease market,” Duffy said. “We never recovered from that.”
Between complications in the oil and gas industry and COVID-19, Duffy said depending on the submarket, it could take at least 10 years to stabilize.
The office market in the Katy area has grown by nearly 320,000 square feet in the last five years, and rental rates have remained between $27.23 and $28.68 per square foot in that time, according to Caldwell Cos. Duffy said while rent costs might not be drastically changing, landlords are offering incentives in hopes of attracting tenants to fill empty space.
“Rental rates will remain fairly static,” Duffy said. “Most landlords are trying to give more free rent and more tenant improvement dollars and hold the rate so that they don’t long-term devalue their building. They’re just accelerating leasing by saying ... ‘We’ll give you the first year free on a 10-year deal.’”
Rollyn Yost, broker with RCR Properties Inc. in Katy, said the number of office vacancies increased quickly when the pandemic hit, and companies who were trying to save money and had employees working from home chose to break or not renew their leases.
“There suddenly were a lot of businesses trying to save money and not a lot of businesses looking to fill that suddenly empty commercial space,” she said.
Still, Yost said she expects new businesses to fill office vacancies because most companies want a physical office to use at least some of the time.
“I’m sure it will evolve back to where it was—we’re just in a unique period right now and have had to adjust,” she said.
Becoming more flexible
According to the U.S. Census Bureau, the average Katy-area resident had a 35-minute commute to work before the pandemic.
A portion of the workforce could eliminate their commute entirely as they transition to working from home indefinitely, including several employees of First Community Credit Union, said Katie Rigby, senior vice president of human resources.
During the pandemic, employees who do not interact directly with credit union members such as marketing and support staff have worked from home. Rigby said as many as 42% of the company’s 360 employees have worked remotely during the pandemic, and that number was still 15% by April.
Duffy said employers will likely continue to offer more flexible work schedules with some level of a remote option. However, employees are more likely to stay engaged if they have friends at work, have adequate materials and feel their managers care about them. These are all more easily accomplished from an office, he said.
“I think if you want to recruit and maintain your intellectual capital, which is your people, it’s going to be very difficult to replace the benefits of working in an office,” he said.••Finding new options
Tara Wilson, owner of The Hub Katy, which provides coworking spaces that offer residents a different, more flexible option to work, said she has seen a sharp increase in business since the pandemic started.
Wilson opened The Hub Katy’s first location on Fourth Street in 2016, and after seeing a high demand from tenants, she opened a second location on First Street in 2019. That demand has grown even more during the pandemic for a variety of reasons, she said.
“I think some people just don’t like working at home, and their offices haven’t been open, or they have children and other distractions at home, so it’s helpful to get out and have a new option,” she said. “Other tenants have told me that their companies are subsidizing their places to work—shrinking what they used to have as office space to keep overall costs down—and this feels like a good replacement.”
A desire for community is a driving factor for many people who are seeking in-person places to work, Wilson said. To that end, Hub Katy offers a variety of events—morning meditation, volunteer opportunities, after-work socials—to help provide that aspect.
“It’s just very different to go from working in an office where you interact with coworkers to having no one there except faces on a screen,” Wilson said.
Hadamik said she is also seeing increased interest at The Work Well coworking space and Creekstone Office Condos, and some companies with corporate offices downtown are giving employees a stipend to work out of satellite offices closer to home.
Coworking spaces offer a range of packages, and office condos allow businesses to purchase space rather than committing to long leases. Both Hadamik and Wilson said these options can accommodate entrepreneurs as they evaluate what comes next.
“Long term, I do believe that the way people work and the way companies approach work will remain changed after the pandemic, and people will continue to utilize nontraditional spaces to do their jobs,” Wilson said.