Financing providers are increasingly interested in the narratives surrounding Houston’s office spaces, creating a market that, despite an above-average vacancy rate, is turning into one of the country’s most attractive.
The substantial discounts buyers are negotiating are driving this interest.
Acquisitions by owner-occupiers, private capital, and soon institutional investors are on the rise.
A recent report from CommercialCafe indicates that Houston holds the highest percentage of discounted office sales in the nation, with 69% of office properties sold since 2023 trading at a lower value than their previous sale.
Class-B and Class-C buildings are particularly affected, trading at prices ranging from 30% to 70% below prepandemic values.
Rick Goings, Senior Director at JLL Capital Markets, noted that owners of assets purchased in 2018 or 2019 would find their properties have significantly decreased in value today.
Interestingly, Houston’s position in this market suggests that office owners are becoming more responsive to market conditions than their counterparts in other regions.
Despite the lower valuations, there is a growing optimism surrounding the local office market.
Factors such as population growth, rising leasing activity, and ongoing corporate relocations to Texas are expected to provide the needed support to this segment.
Investors are starting to see attractive opportunities, and lenders have begun to show a more favorable attitude towards financing these acquisitions.
Goings reflected on the recent changes, saying, “A number of the deals that we took to market 18 months, 24 months ago, you could not find a lender for them.”
This convergence of equity capital and debt capital is energizing Houston’s office market.
So far in 2025, the dollar volume of office investments has nearly doubled compared to the total for last year, reaching $1.2 billion in sales year-to-date compared to $650 million for all of 2024, based on JLL data.
Currently, Houston ranks fourth in the nation for office investment activity, and this momentum is expected to continue, with JLL reporting another $400 million of office products under contract.
The average sales price per square foot in Houston for 2025 stands at $96, significantly lower than the national average of $182, as highlighted in the CommercialCafe report.
Ressler mentioned that the volume of transactions occurring at reduced prices may reflect a general lack of confidence in the current market valuations.
Houston’s office vacancy rate is estimated at approximately 21%, making it the tenth-highest nationally according to CommercialCafe statistics.
The dynamics of sales have been influenced by lenders, as evidenced by the recent transaction involving the three-building Brookhollow Central complex.
Purchased by a joint venture of Meneses Holdings and Dominus Commercial for $58.4 million, this deal represented a 17% decrease from its 2018 sale price of $70.5 million.
The buyers, new to the Houston office market, were drawn by the strong location and population growth in the area, but they ultimately had to adjust their offer based on the financing they could secure, according to Stephen LaMure, CEO of Dominus Commercial.
Initially, the joint venture was under contract for a higher purchase price but struggled to obtain financing, necessitating a renegotiation of the sale price.
The not-distressed nature of the asset did not prevent Israeli bondholders from exerting significant influence on the sale, prompting a quick conclusion to the transaction after ongoing consultation with lenders over the past year.
LaMure elaborated, stating, “We basically went back to the owners and said ‘Hey, here’s what the lenders will do. If you want us to buy it, this is kind of the price we have to buy it at.'”
According to JLL data, lender-driven sales represent approximately 35% to 40% of office investment sales this year.
However, the trends within the wider office market, including Houston’s data where 79% of vacancies are seen in properties that are at least 20 years old, present a nuanced picture of current market conditions.
Notably, almost 40% of transaction volume this year is concentrated in West Houston, which leads the country in leasing velocity with 10 million square feet leased since 2022, according to Goings.
Despite a leasing activity drop to 2.1 million square feet last quarter—less than half of the previous year—Houston nevertheless recorded a positive absorption of 758,000 square feet.
Goings highlighted that many local companies have already rightsized, allowing investors to base decisions on more current leases, as opposed to outdated prepandemic arrangements.
He emphasized that there are promising buying opportunities available today.
As Texas continues to draw corporate relocations, with 22 companies moving to the state last year, the outlook for office activity remains positive, according to LaMure.
LaMure expressed confidence in this trend, stating, “I just don’t see that slowing down. I don’t see companies moving to Texas and then deciding, ‘You know what, I think we should go back to California or Detroit or New York or Boston.'”
Owner-users are increasingly taking advantage of the current discounted prices to purchase office buildings, seeking to avoid ongoing rent payments and gain control over their real estate.
Ressler noted that tenants have comprised approximately 10% to 15% of buyers in Houston since 2020, contrasted with historical averages around 5%.
The peak for owner-user buyers reached 16.5% in 2021, with tenant purchases representing 11% of buyers year-to-date.
During the previous year, private capital, including high-net-worth individuals and private offices, constituted 75% of buyers, with that figure standing at 61% in the current year.
CEO Nirav Shah of Tenant Managers, which acquired two value-add office buildings in Houston in 2022, reported a significant rise in unsolicited interest from owner-users, indicating a strong demand even for properties not listed for sale.
Shah remarked that the potential decrease in interest rates could serve as an attractive signal for owner-occupiers to enter the market.
This scenario allows them to build equity instead of channeling funds into rent.
However, new buyers may face a steep learning curve, particularly as the mechanical systems in office buildings differ from those in other property types.
He pointed out that although entry points may seem accessible, prospective buyers need to be aware of potential significant upgrade costs not factored into their purchase decisions.
While institutional buyers remain selective, they too are discovering an uptick in opportunities as more lenders lend support to this asset class.
Currently, only 17% of year-to-date buyers have been institutional investors, but this proportion is likely to increase over the next two to three years.
Meanwhile, smaller investors like Dominus Capital are seeking to identify new opportunities.
LaMure concluded, “There’s still quite a few deals in Houston to be made. There’s still a lot of distress.”
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