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<\/p>\nFinancing providers are increasingly lending an ear to the stories of Houston offices, making a market with an above-average\u00a0vacancy also one of the most attractive.<\/p>\n
The deep discounts buyers are securing aren\u2019t hurting, either.<\/p>\n
The result\u00a0is\u00a0a surge of acquisitions\u00a0by owner-occupiers, private capital and soon, institutional investors.\u00a0<\/p>\n
<\/p>\n
Houston has the country\u2019s 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\u00a0CommercialCafe report.<\/a>\u00a0<\/p>\n Many buildings, especially Class-B and C, are trading at 30% to 70% below prepandemic\u00a0values,\u00a0Yardi Matrix<\/a>\u00a0Manager of Business Intelligence\u00a0Doug Ressler<\/a>\u00a0said.<\/p>\n \u201cIt\u2019s no surprise that if you bought an asset in 2018 or 2019, it\u2019s not worth what it is today,\u201d\u00a0JLL Capital Markets<\/a>\u00a0Senior Director\u00a0Rick Goings<\/a>\u00a0said.<\/p>\n But Houston’s leading position\u00a0could indicate that office owners are capitulating to the market faster than elsewhere, he said.\u00a0<\/p>\n And\u00a0the\u00a0lower valuations\u00a0are belying\u00a0population growth, increased leasing activity and continued\u00a0corporate relocations<\/a>\u00a0to\u00a0the Lone Star State that are expected to buoy the local office market. Investors are seeing a sweet deal, and lenders\u00a0have become more\u00a0willing\u00a0to finance acquisitions.\u00a0<\/p>\n \u201cA number of the deals that we took to market 18 months, 24 months ago, you could not find a lender for them,\u201d Goings\u00a0said. \u201cYou have this confluence of events where equity capital and debt capital are starting to marry up and say, \u2018I want to chase these opportunities.\u2019\u201d\u00a0<\/p>\n That has supercharged Houston\u2019s office market.<\/p>\n 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<\/a> data. This puts Houston in fourth place nationally, and the surge is expected to continue \u2014 JLL has another $400M of office product under contract.<\/p>\n Sales price per square foot in Houston for 2025 is averaging $96, well below the national average of $182, the CommercialCafe<\/a> report shows.\u00a0<\/p>\n \u201cA significant portion of these transactions are occurring at reduced prices, which might indicate a lack of overall confidence in the market’s current valuations,\u201d Ressler said via\u00a0email.\u00a0<\/p>\n Houston\u00a0has an office vacancy rate of about 21%, the 10th-highest rate nationally, according to CommercialCafe.<\/p>\n Lenders drove the haircut when the\u00a0three-building Brookhollow Central complex<\/a>\u00a0sold to a joint venture between\u00a0Meneses Holdings and\u00a0Dominus Commercial<\/a>\u00a0this year.<\/p>\n The duo, new to Houston office investment, bought the property for $58.4M, 17%\u00a0less than its 2018 sale price of $70.5M.<\/p>\n 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<\/a> said. The JV\u00a0was\u00a0originally under contract at a higher purchase price but was\u00a0unable to secure debt, he said.<\/p>\n \n Brookhollow Central III in Houston.\n <\/p>\n While the asset was not distressed, Israeli bondholders were set to get the proceeds<\/a>\u00a0and had significant influence in pushing the sale to happen. The buyers continued consulting with lenders for about a year, LaMure said.<\/p>\n \u201cWe basically went back to the owners and said \u2018Hey, here\u2019s what the lenders will do. If you want us to buy it, this is kind of the price we have to buy it at,\u2019\u201d he said.<\/p>\n About 35% to 40% of office investment sales<\/a> this year have been lender-driven,\u00a0according to JLL data. But the overall trend of sales \u2014 like Houston\u2019s office market, which has 79% of its vacancy concentrated<\/a> in buildings at least 20 years old \u2014 is nuanced.<\/p>\n Just under 40% of transaction volume this year has been in West Houston<\/a>, a submarket leading the country in leasing velocity with 10M SF signed since 2022, Goings said.<\/p>\n Houston saw\u00a02.1M SF of leasing activity last quarter, which is less than half a year prior\u00a0but still enough for 758K SF of positive absorption, according to a\u00a0Partners Real Estate report.<\/a>\u00a0<\/p>\n 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.\u00a0\u00a0<\/p>\n \u201cWhenever you start to dig into it, there’s extremely good buying opportunities today,\u201d he said.\u00a0<\/p>\n Texas continues to attract corporate relocations, with 22 from outside the state\u00a0last year.<\/a>\u00a0That will continue to fuel office activity going forward, making it a smart investment, LaMure said.<\/p>\n \u201cI just don’t see that slowing down,\u201d he said. \u201cI 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.’\u201d<\/p>\n Many sales\u00a0are 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.<\/p>\n 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.<\/p>\n Private capital, such as high net worth individuals and private offices, made up 75% of\u00a0buyers last year and 61% so far this year.\u00a0<\/p>\n Tenant Managers<\/a>, which bought two value-add Houston office buildings in 2022<\/a>, has seen significant unsolicited demand from owner-users, CEO Nirav Shah<\/a> 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.<\/p>\n \u201cThe fact that interest rates may be going down is probably a very good time for owner-occupier guys to come in,\u201d he said, adding they could build equity instead of paying rent.<\/p>\n 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.<\/p>\n \u201cYou 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,\u201d he said.\u00a0<\/p>\n 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.<\/p>\n While only 17% of year-to-date buyers have been institutional investors, that will likely increase over the next two to three years, he\u00a0said.<\/p>\n In the meantime, smaller investors like Dominus Capital are keeping an eye out for opportunities.<\/p>\n \u201cThere\u2019s still quite a few deals in Houston to be made. There\u2019s still a lot of distress,\u201d LaMure said.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"Financing providers are increasingly lending an ear to the stories of Houston offices, making a market with an…\n","protected":false},"author":3,"featured_media":201073,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5130],"tags":[111227,111226,4345,40809,111228,88743,358,3187,37455,111225],"class_list":{"0":"post-201072","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-houston","8":"tag-commercialcafe","9":"tag-doug-ressler","10":"tag-houston","11":"tag-jll","12":"tag-office-investment-sales","13":"tag-rick-goings","14":"tag-texas","15":"tag-tx","16":"tag-west-houston","17":"tag-yardi-matrix"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115149188822070750","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/201072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=201072"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/201072\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/201073"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=201072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=201072"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=201072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/p>\n