Greater Houston-area office vacancies force developers to rethink strategies

Kastle Systems data shows Houston and other major Texas metropolitan areas are leading the nation in returning to the office since the onset of the COVID-19 pandemic. (Ronald Winters/Community Impact Newspaper)
Kastle Systems data shows Houston and other major Texas metropolitan areas are leading the nation in returning to the office since the onset of the COVID-19 pandemic. (Ronald Winters/Community Impact Newspaper)

Kastle Systems data shows Houston and other major Texas metropolitan areas are leading the nation in returning to the office since the onset of the COVID-19 pandemic. (Ronald Winters/Community Impact Newspaper)

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Although local office vacancy rates are lower than those in Houston, Lake Houston, Kingwood and Humble each have higher vacancy rates in 2021 than in 2016. (Ronald Winters/Community Impact Newspaper)
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The Pew Research Center surveyed 5,858 U.S. adults between Oct. 13-19 to gauge their opinions on working remotely during the pandemic. (Ronald Winters/Community Impact Newspaper)
Prior to the COVID-19 pandemic, roughly 4% of Houstonians worked remotely, according to 2019 U.S. Census Bureau data. However, lingering pandemic fears have forced some employers to rethink strategies related to working in an office.

At the end of July, about 50.7% of Houstonians were scanning into workplaces with security systems managed by Kastle Systems, which offers security services to more than 40,000 businesses nationwide.

That number is up from roughly 25.6% in July 2020, but Mike Slauson, Kastle Systems’ Houston-based general manager, said it remains unclear whether the percentage of employees returning to the office will continue to increase as fear over the delta variant rises.

“I think we would continue to see [the number of employees returning to work] rise, but now with this delta variant, we may see a pause for some time,” he said. “I think people are still trying to feel their way through this and just figure out what’s best from a safety and security standpoint for their employees.”

According to Joe Greff, owner of office furniture dealer Facility Solutions in Kingwood, the global pandemic forced his business to a near halt. Greff noted while business is better off now than it was six months ago, the pandemic is still causing a strain in the office furniture market.


“I went about eight months without writing an order during the pandemic,” Greff said. “People were sending their employees home, and the last thing they needed was office furniture.”

While Houston’s office vacancy rate has risen since 2015, the vacancy rates for local areas, such as Kingwood and Lake Houston, remain much lower with a number of new office projects coming soon.

Office vacancies

Houston’s office vacancy rate for the second quarter of 2021 was approximately 24.4%, up from roughly 22.3% at the same time in 2020, according to data provided by NAI Partners, a Texas-based real estate firm.

Patrick Duffy, president of real estate firm Colliers Houston, said Houston had the highest pre-pandemic office vacancy rate of any U.S. major city, largely due to a rapid increase in construction to accommodate energy companies expanding from 2010-14.

"We built a lot of space for energy companies through 2014 and ... into 2015, but oil and gas crashed, and a lot of those plans were canceled,” he said, noting many leased properties were dumped into the sublease market. “We went from 1986 to 2002 in The Galleria without building a new building. I think we’re back in that kind of market for most areas.”

According to Duffy, factoring in employee commute times is important when selecting a location for a new office space. Data provided by data aggregator Zip Atlas shows the average commute times in 2020 for residents in Kingwood and Humble were roughly 36 and 30 minutes, respectively.

Duffy noted while the construction of new office space in Houston has remained stagnant in some areas, newer buildings had a roughly 10% higher occupancy rate than older buildings. Despite the higher occupancy rates, Duffy said he still expects developers to pause on new construction as the workforce responds to rising COVID-19 cases.

Robert Fields—president and CEO of national real estate firm Patrinely Group, which specializes in Class A commercial office buildings—said while he believes physical offices will remain a mainstay, employers will likely be more flexible in allowing for remote work going forward.

“When office development takes place going forward, I believe there will be a greater focus on flexibility, a greater focus on health and safety, and a greater focus on lifestyle,” Fields said. “I think the pandemic has certainly accelerated that as we all worked from home last year and became accustomed [to it] and realized that we can still be productive.”

Still, Fields said there are certain aspects of meeting in a physical office that are difficult to replicate when working remotely, including new employee onboarding and team collaboration.

Finding solutions

Some developers have looked toward suburban markets, such as Kingwood, to build new office space. According to data provided by Texas real estate firm Caldwell Cos., the total office vacancy rate in Kingwood and Humble after the second quarter of 2021 was approximately 10.3%.

Glenn Clements, president of Morris Strategic Investments, said he thinks his company’s upcoming Kingwood Office Condominiums project will do well in the suburban market. The 37,500-square-foot space is slated to open in early 2022 on Rockmead Drive.

“I think suburban office buildings have performed better than [those] inside the Loop,” he said.

Because the new office space is separated into 30 condominiums, Clements noted prospective business owners will purchase stand-alone spaces within the complex, as opposed to leasing them, which he said may help alleviate some COVID-19-related fears.

“You don’t have the common areas you share with other people,” Clements said. “People don’t want to share a bathroom with 10 other tenants on the floor, and in this model that we’re presenting, you have your own bathroom. You have your own lobby area or reception area when customers walk in.”

In the Lake Houston area, McCord Development is offering an alternative solution for office space with Nimble Workspaces, which is expected to open in Generation Park in September. The development will feature 36 offices that come equipped with furniture, private Wi-Fi and access to private meeting spaces.

Ian Adler, McCord Development’s director of marketing, said the goal of the project is to provide businesses with flexibility by reducing overhead costs.

“Our longest official term is a year, but honestly, we’re super flexible,” he said, noting businesses could also lease a space month to month or purchase day passes. “The idea is that it doesn’t really lock them into anything because businesses are dynamic.”

Adler said areas such as Lake Houston have been historically underserved in terms of office space options. He noted in the last five years, more than 50 prospective businesses approached McCord in search of smaller office spaces, but the projects McCord had previously constructed were too large. With Nimble Workspaces, McCord has booked several tenants ranging from financial advisers to medical services.

“I think what’s advantageous is we are basically on the edge of a suburban market here in the Lake Houston area, ... and there really isn’t a place close by that [people] can work in this kind of environment,” Adler said. “They all have to go to downtown.”