Office Rents Are On The Rise

The Harris County Appraisal District (HCAD) recently reported most property owners had not seen a significant increase in property values since the 2008 downturn, with the real estate market showing rapid growth over the last year.  “Properties in virtually every segment of the market have experienced increases in sales prices, median prices, dollar volume and sales volume,” according to the appraisal district’s website.

One report quoted HCAD saying homeowners would see their appraised values rise by about 16%, while office buildings would increase by 18%, industrial by 14% and apartments by a whopping 22%.

The increased property values are resulting in increased taxes and rental rates across the board.  Office tenants are particularly feeling the sticker shock as they renew leases signed five to 10 years ago when the market was not as strong and new buildings were not as commonplace as today.

Office rents have been gradually increasing the last few years due to market demand and new construction. In addition, many landlords changed their rental rate structure from gross to net rates, making sure the increased taxes and other operating expenses were included and covered in the total.  With the increased operating expenses added to the increased base rates, tenants are now seeing major escalations from two years ago. Overall, office rents have increased almost 9% in the last two years, from $22.75 per square foot to the current $24.72 per square foot, according to statistics from Commercial Gateway, the commercial division of the Houston Association of REALTORS®.  All quoted gross rental rents are weighted and averaged based on available space as of Second Quarter 2014.

When broken down by class, rents have shown a 12.1% increase, from $28.65 per square foot in Second Quarter 2012 to $32.10 in Second Quarter 2014, for Class A properties.  Smaller escalations were reported for the lower classes, with an 8.8% increase in Class B, from $18.95 to $20.62 per square foot, and a 4.8% increase for Class C, from $14.70 to $15.41, over the last two years.

Within selected submarkets during the last two years, The Woodlands reported the largest percentage increase, 17.0%, for overall rates with Uptown showing a 15.4% increase and Westchase a 14.2% increase.  For Class A space, rents have reported a 21.8% jump in Westchase and a 13.0% jump in Uptown over the last two years; Class B rates also show double-digit increases with Uptown’s 24.2% increase leading the way, followed by The Woodlands’ 22.0% and the Energy Corridor’s 13.7% increase.

With very few signs of the area’s economy hitting any roadblocks in the near future, rental rates will continue on the upswing.


Anthony Petry

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