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4/11/25
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This report provided by real estate services firm Avison Young
The Houston office market is experiencing a clear divide with the trophy sector still leading the recovery, according to Avison Young’s First Quarter 2025 Office Market Report for Houston.
The first quarter of 2025 saw over 340k sf of trophy office space absorbed, primarily from LyondellBasell's 318k sf relocation. Overall net absorption was a more moderate 194k sf, but the removal of 1.7 msf from the competitive inventory, through owner-user sales and conversions, has resulted in a 60 basis point drop in the citywide vacancy rate, now at 26.8%. Conversions and redevelopment activity, with over 4 msf of office space being considered for alternative uses, could further reduce vacancy rates and reshape the market.
Anthony Squillante, Principal and office tenant representation specialist at Avison Young, said, "There's a distinct tenant preference for high-quality, well-amenitized office spaces in prime locations, and with the office construction pipeline at a historic low, we're beginning to see supply constraints in the top-tier market."
Leasing activity for the quarter reached nearly 2.3 msf, which is below the 10-year quarterly average. While this is primarily due to fewer large-scale transactions, underlying demand remains. Notably, leases under 10k sf comprised 46.8% of all first quarter transactions, significantly exceeding pre-pandemic averages. However, large leases, those over 50k sf, accounted for only 18.3% of activity, a stark contrast to the 34.4% average from 2015 to 2020. There is a potential positive trend emerging, with expansion-related transactions pointing toward a possible resurgence, fueled by growing business confidence and Houston’s economic stability.
Wade Bowlin, Principal and Managing Director of Avison Young’s Houston office, stated, "We anticipate a notable increase in space demand over the next two years, driven by upcoming lease expirations, indicating a strong pipeline of future lease transactions."
Energy-related companies will account for 33% of upcoming lease expirations by square footage among major office-using industries from 2025 to 2031, totaling 18.5 msf. Banking, finance, insurance and real estate tenants, totaling nearly 8 msf, will account for 14.3%.
The office investment sales market has seen a noticeable uptick in activity over the past six months, as investors pursue assets at adjusted valuations. First quarter sales reached $277 mil, as buyers seized the opportunity to acquire properties at discounted prices. It appears that pricing has bottomed out, with investors showing increased confidence and opportunity, albeit with continued caution. With the office market’s recovery expected to gradually strengthen in the year ahead, total sales volume is projected to exceed last year’s investment volume totals.
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