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The Houston office market logged 663,137 square feet of net absorption in Q3/25, marking the third consecutive quarter of positive demand and building momentum following the 436,120 square feet absorbed in Q2/25. This improvement comes after a prolonged period of volatility. For the full year of ‘24, the market registered negative 1.0 million square feet of absorption. Despite this recent rebound, the longer-term trend remains uneven, with Houston recording negative absorption in four of the past five years and six of the last ten, signaling that more space was vacated than occupied during those periods.

Since Q3/15, quarterly absorption has averaged negative 121,700 square feet, underscoring the structural challenges in sustaining consistent office demand. The availability rate, which includes vacant, soon-to-be-vacant, and sublease space, peaked at 28.3 percent in Q4/22 before easing to 26.2 percent in Q3/25. Prolonged periods of contraction have contributed to this elevated level of available space.

At the same time, the Houston office market recorded a notable rise in asking rents. Gross rents climbed to $30.33 per square foot in Q3/25, up sharply from $28.74 per square foot in Q2/25, pushing average rents above the $30 threshold for the first time since before the COVID-19 pandemic. This increase reflects landlords’ confidence in top-tier assets and the “flight-to-quality” trend, as tenants continue to prioritize Class A space.

 

Negative absorption over the last ten years has dumped a considerable amount of space onto the market.

By class, the breakdown of available office space is as follows:

• Class A: 39.7 million square feet
• Class B: 25.9 million square feet
• Class C: 1.8 million square feet

Given the current availability of space, the number of expiring leases, and historical absorption levels, the office market will face continued challenges in reducing vacancies to healthier levels. While availability declined slightly to 26.2 percent in Q3/25, the market still has a long way to go before returning to pre-‘15 conditions, when availability rates were below 20 percent. Significant positive absorption and new demand drivers will be essential to meaningfully reduce vacancy levels.

Negative net absorption has continued to pressure landlords, limiting their ability to raise rents consistently. Despite ongoing challenges, rents have increased in ’25, hitting the highest level recorded since ’15 at $30.33 in Q3. This marks a $2.46 gain from the cycle low of $27.87 in Q2/17. Gross rents include taxes, insurance, maintenance, and the rent paid to the owner. When adjusted for inflation, however, gross rents have effectively declined, underscoring the market’s ongoing difficulty in achieving meaningful rent growth despite this nominal high.

 

Office construction remains constrained by the oversupply of space and lack of rent growth, leading to a notable thinning of Houston’s construction pipeline over the past few years. Deliveries measured just under 1.0 million square feet in ’22, 1.2 million square feet in ’24, and 2.7 million square feet in ’23. Year-to-date ’25 deliveries total 1.4 million square feet.

As of Q3/25, approximately 1.5 million square feet were under construction, representing 0.6 percent of Houston’s total office inventory of 255.4 million square feet. This is well below the 10-year average of 3.3 million square feet. Medical office projects accounted for 400,000 square feet of the pipeline in Q3/25, and a high percentage of this space is preleased, which should help minimize the impact of new supply on the broader market. While medical office accounted for nearly 60 percent of the construction pipeline in late ‘24, its share has since moderated to 27 percent in Q3/25.

According to the Kastle Systems Back-to-Work Barometer, which tracks office entry card usage, Houston’s office occupancy hovered between 58 and 60 percent through much of ’24 and ’25. Austin and Dallas reported similar rates, while most other major metros ranged between 40 and 50 percent.

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 Q3/25, the vacancy rate for newer buildings completed in the past 15 years averaged 14.7 percent compared to 27.7 percent in older, vintage buildings completed before ‘09.

Economy  Real Estate