The global economy changed in the wake of Covid in numerous ways. For some sectors, it has been a long-term boom. Others have seen busts and booms. But – for many – it was a permanent shift in the way their customers interacted with their products.
One of the most obvious is the rise of “work from home” and “work from anywhere”. That was great for employees and employers. It meant more flexibility in terms of schedule for employees, and it meant less office space and rent expense for companies. It was a win-win.
Unless you were the owner of the office property. With tenants less willing to pay up for rents and with fewer employees coming to the office, it became an exceedingly difficult time for them. And it only got worse with time. Most of these are highly levered, and – when bad times come and stay – that becomes problematic. And it is not likely to change anytime soon.
As with most things, there are pockets that are better and places where it is much, much worse. Houston is an example of one place that has been hit particularly hard by a confluence of factors. For example, Houston has little in the way of zoning laws and rules. If you want to build an office building in a largely residential neighborhood, you are more than likely going to be able to do it. Even without the pandemic, Houston tends to overbuild rapidly. Include the the pandemic and it simply gets worse.
There is another factor when it comes to the Houston office sector that cannot be overlooked – the price of oil. The price of oil has not exactly been in freefall. But it has been steadily declining over the past two years. And that is not helpful to an economy that is known for its oil companies and employees. Granted, Houston also has a large and vibrant healthcare sector along with other areas of employment. But a declining oil price is not exactly bullish for the local office market.
Covid did not kill the office market. But it certainly did not help. Work from home has waned but not reversed. It remains prevalent across significant swathes of the economy, and it will continue to as well. The pain for office landlords has been brutal. And we do not see it improving any time soon!