Financing providers are increasingly lending an ear to the stories of Houston offices, making a market with an above-average vacancy also one of the most attractive.
The deep discounts buyers are securing aren’t hurting, either.
The result is a surge of acquisitions by owner-occupiers, private capital and soon, institutional investors.
Houston has the country’s highest percentage of discounted office sales, with 69% of office properties sold since the start of 2023 traded at a lower value than their previous sale, according to a CommercialCafe report.
Many buildings, especially Class-B and C, are trading at 30% to 70% below prepandemic values, Yardi Matrix Manager of Business Intelligence Doug Ressler said.
“It’s no surprise that if you bought an asset in 2018 or 2019, it’s not worth what it is today,” JLL Capital Markets Senior Director Rick Goings said.
But Houston’s leading position could indicate that office owners are capitulating to the market faster than elsewhere, he said.
And the lower valuations are belying population growth, increased leasing activity and continued corporate relocations to the Lone Star State that are expected to buoy the local office market. Investors are seeing a sweet deal, and lenders have become more willing to finance acquisitions.
“A number of the deals that we took to market 18 months, 24 months ago, you could not find a lender for them,” Goings said. “You have this confluence of events where equity capital and debt capital are starting to marry up and say, ‘I want to chase these opportunities.’”
That has supercharged Houston’s office market.
2025 office investment dollar volume is already almost double all of last year, with $1.2B of sales year-to-date compared to $650M for all of 2024, per JLL data. This puts Houston in fourth place nationally, and the surge is expected to continue — JLL has another $400M of office product under contract.
Sales price per square foot in Houston for 2025 is averaging $96, well below the national average of $182, the CommercialCafe report shows.
“A significant portion of these transactions are occurring at reduced prices, which might indicate a lack of overall confidence in the market’s current valuations,” Ressler said via email.
Houston has an office vacancy rate of about 21%, the 10th-highest rate nationally, according to CommercialCafe.
Lenders drove the haircut when the three-building Brookhollow Central complex sold to a joint venture between Meneses Holdings and Dominus Commercial this year.
The duo, new to Houston office investment, bought the property for $58.4M, 17% less than its 2018 sale price of $70.5M.
They were attracted to its excellent location and the region’s population growth, but the deal was dictated by the amount of financing they could secure, Dominus Commercial CEO Stephen LaMure said. The JV was originally under contract at a higher purchase price but was unable to secure debt, he said.
Brookhollow Central III in Houston.
While the asset was not distressed, Israeli bondholders were set to get the proceeds and had significant influence in pushing the sale to happen. The buyers continued consulting with lenders for about a year, LaMure said.
“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,’” he said.
About 35% to 40% of office investment sales this year have been lender-driven, according to JLL data. But the overall trend of sales — like Houston’s office market, which has 79% of its vacancy concentrated in buildings at least 20 years old — is nuanced.
Just under 40% of transaction volume this year has been in West Houston, a submarket leading the country in leasing velocity with 10M SF signed since 2022, Goings said.
Houston saw 2.1M SF of leasing activity last quarter, which is less than half a year prior but still enough for 758K SF of positive absorption, according to a Partners Real Estate report.
Many companies in Houston have already rightsized, meaning investors can make decisions based on recent leases rather than prepandemic deals that could soon expire, Goings said.
“Whenever you start to dig into it, there’s extremely good buying opportunities today,” he said.
Texas continues to attract corporate relocations, with 22 from outside the state last year. That will continue to fuel office activity going forward, making it a smart investment, LaMure said.
“I just don’t see that slowing down,” he said. “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.’”
Many sales are going to owner-users taking advantage of a discounted environment to purchase buildings to avoid paying rent and gain control over their space, Ressler said.
Tenants have made up 10% to 15% of the buying pool in Houston since 2020, while historical averages are closer to 5%, per JLL. The proportion of owner-user buyers peaked at 16.5% in 2021, and tenants have accounted for 11% of year-to-date buyers.
Private capital, such as high net worth individuals and private offices, made up 75% of buyers last year and 61% so far this year.
Tenant Managers, which bought two value-add Houston office buildings in 2022, has seen significant unsolicited demand from owner-users, CEO Nirav Shah said. The firm has had at least three owner-user groups attempt to buy its office buildings this summer, despite them not being for sale, Shah said.
“The fact that interest rates may be going down is probably a very good time for owner-occupier guys to come in,” he said, adding they could build equity instead of paying rent.
But buying an office building for the first time comes with a learning curve, as its mechanical systems are different from other types of properties, Shah said.
“You may think that the entry point is $75 to $100 a foot today, but that building owner is not aware that he may have a $1.5M elevator upgrade, which he has not factored in,” he said.
Institutional buyers are more selective about what they chase, but they are also finding more opportunities as lenders increasingly deem the asset class financeable, Goings said.
While only 17% of year-to-date buyers have been institutional investors, that will likely increase over the next two to three years, he said.
In the meantime, smaller investors like Dominus Capital are keeping an eye out for opportunities.
“There’s still quite a few deals in Houston to be made. There’s still a lot of distress,” LaMure said.