Quarterly Update: Office Market
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The Houston office market logged 295,350 square feet of negative net absorption in Q4/24, a sharp decline from the 1.2 million square feet of positive net absorption logged in Q4/23. For the full year of ’24, net absorption was negative 277,537 square feet. This pattern of fluctuating absorption has been a recurring trend for Houston, with negative net absorption recorded in four of the past five years and six of the last ten. Negative net absorption means more space was vacated than occupied.
Since Q4/14, net absorption in the Houston office market has averaged negative 103,438 square feet per quarter, reflecting consistent challenges in balancing demand and supply. This trend has contributed to a significant increase in available office space. The availability rate—which includes vacant, soon-to-be-vacant, and sublease space—was 19.1 percent in Q4/14. Over the past decade, persistent negative absorption has driven availability upward, reaching a peak of 28.2 percent in Q4/22, before declining to 25.7 percent in Q4/24.
Negative absorption over the last ten years has dumped a considerable amount of space onto the market.
The breakdown of available office space by type:
- Class A: 41.4 million square feet
- Class B: 23.4 million square feet
- Class C: 1.7 million square feet
Given the current availability of space, the number of expiring leases, and the historical absorption levels, the office market will face continued challenges in reducing vacancies to healthier levels. Since Q4/14, vacancy rates have steadily increased, peaking at 24.9 percent in Q4/24. While there has been stability in ‘24, with the rate hovering around 24.9 percent, the market still has a long way to go before returning to pre-‘15 levels, where vacancy rates tracked below 15 percent. Without significant positive absorption and new demand drivers, the office market will struggle to bring vacancies down to more balanced levels.
Negative net absorption has prevented landlords from raising rents. Gross asking rent in Q4/24 was $29.92 and has remained between $27.96 to $30.50 since ’14. Gross rents encompass taxes, insurance, maintenance, and rent paid to the owner. Adjusted for inflation, gross rents have decreased.
Office construction is constrained by the oversupply of space and lack of rent growth. ’22 saw the least amount of new space (1.2 million sq. ft.) come onto the market in the last ten years. 3.0 million square feet of space was delivered in ’23, and 1.3 million square feet in ’24.
Houston's construction pipeline has thinned out notably over the past few years. As of Q4/24, 1.9 million square feet were underway, equal to 0.7 percent of Houston's total inventory of 257.1 million square feet and just over half of the 10-year average of 3.4 million square feet. Medical office projects accounted for over half (51 percent) of office projects under construction in Q4/24. Total current construction was roughly 81 percent preleased as of the fourth quarter, minimizing the impact of new supply.
The work-from-home trend continues to impact office occupancy. According to the Kastle Systems Back-to-Work Barometer, which tracks office entry card usage, Houston's office occupancy averaged 60 percent at the end of Q3/24, just before the holiday season. Austin and Dallas saw similar rates, while comparable metros reported occupancy levels between 40 and 50 percent.
As a result, when leases come up for renewal, tenants are scaling back their space needs or relocating to newer buildings and those with better amenities. At the end of Q4/24, the vacancy rate for newer buildings completed in the past 15 years averaged 14.6 percent compared to 27.8 percent in older, vintage buildings completed before ‘09.
Prepared by Greater Houston Partnership Research
Leta Wauson
Research Director
lwauson@houston.org
