The energy industry is currently undergoing one of its most challenging periods since the early 1980s. Oil prices have dropped roughly 68% over the last year, and the unfolding effect on the Houston office market will also present its challenges. Q1 2020 net absorption dropped to -577,000 sq. ft., the largest quarterly negative absorption since Q2 2018. The overall vacancy rate increased 70 basis points from the previous quarter to end Q1 2020 at 20.0%.
Class A properties had negative absorption of 581,000 sq. ft. but Class B buildings posted positive absorption of 79,000 sq. ft. The Energy Corridor gained 225,000 sq. ft., followed by South Main/Medical Center with 99,000 sq. ft. The Woodlands saw negative net absorption of over 270,000 sq. ft.
In the Energy Corridor, S & B Engineers & Constructors expanded into the recently renovated property at 15150 Memorial. In the Woodlands, Alight Solutions took up the entire 180,000-sq. ft. build-to-suit at 8770 New Trails Drive and vacated a combined 433,000 sq. ft. from 9500 & 9501 Lakeside Drive. Houston Methodist occupied 100,000 sq. ft. at 4800 Fournace in the South Main/Medical Center submarket.
The construction pipeline expanded in Q1 2020 with Houston projected to have 1.1 million sq. ft. of new deliveries spread across CBD, West Loop Galleria, Katy, Inner Loop, Far West, and the Woodlands submarkets over the next few quarters.