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<\/p>\nHouston has the country\u2019s third-highest amount of office conversion square footage planned or underway at 6.7M SF.<\/p>\n
That’s set to make a noticeable dent in the city\u2019s glut of unoccupied office space as conversions and demolitions outpace new construction both locally and across the nation.<\/p>\n
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The widespread trend of converting underutilized office space into multifamily or other uses comes as new office construction has plummeted. The U.S. is set to lose more office product than is constructed this year, according to CBRE<\/a>, the first time that has happened in at least 25 years<\/a>.<\/p>\n CBRE<\/a>\u00a0Director of U.S. Office Research\u00a0Jessica Morin<\/a>\u00a0largely attributed that to national market conditions: Multifamily\u00a0continues to have strong fundamentals, while office vacancy rates hover at an all-time high. That’s exemplified in Houston, which had a 25.9% office availability rate in the second quarter, according to CBRE.\u00a0<\/p>\n \u201cYou look at the opportunity on the other side, with significantly lower multifamily vacancy, double-digit rent growth since the pandemic,\u201d Morin said. \u201cSo the opportunity there is pretty apparent.\u201d\u00a0<\/p>\n Those fundamentals have also made new office construction less appealing. An average 44M SF of new U.S. office space was delivered annually over the past 10 years. But this year, just 13M SF is expected, and next year, even that figure will be cut in half,\u00a0Morin said.<\/p>\n Meanwhile, an average of 58 office conversions<\/a>\u00a0were completed annually from 2018 to 2024 nationally. In 2024 alone, a record 94 conversions wrapped up\u00a0and another 68 are expected this year, according to CBRE.\u00a0<\/p>\n Many of those are happening in Houston, where the new office construction pipeline is running dry and only 630K SF of office space is being built. That is just a fraction of the 6.7M SF slated for conversion, representing 3.2% of Houston\u2019s overall office market, CBRE reports.\u00a0<\/p>\n Two office buildings in Houston are actively being converted, and another eight office conversions have been planned or announced, according to CBRE\u2019s tracker<\/a>. Six out of the 10 are slated to become multifamily.\u00a0<\/p>\n One of the biggest announced conversions in the Houston market is the redevelopment of Sugar Land<\/a>\u2019s former Fluor campus, which has 1.1M SF of office space. Fluor Corp<\/a>. moved to a much smaller, 308K SF space in the Energy Corridor in 2023<\/a>.<\/p>\n Sugar Land City Council created a redevelopment district for the 53-acre campus and approved up to $24.3M in incentives<\/a> and reimbursement for new parkland, civic spaces, demolition, environmental remediation and public infrastructure. Houston-based Lovett<\/a> Group will develop the project known as Lake Pointe Green,\u00a0including about 720 multifamily units.<\/p>\n Cities everywhere are easing regulations and offering incentives to enable office-to-residential conversions, which can help address housing shortages and increase property tax revenues by increasing the value of an underutilized building, according to CBRE.<\/p>\n Those municipal incentives could be a boon for office conversions going forward, Morin said.<\/p>\n \u201cIt\u2019s not in a city\u2019s interest to have an empty office building,\u201d she said, adding that conversions of empty office buildings can improve the overall look, perception and safety of a neighborhood.<\/p>\n Yet rising construction costs, tariffs,\u00a0reduced labor availability and persistently high interest rates could present impediments for conversion projects going forward, according to the report. Their viability is already challenged by building age, floor plate size and unpredictability.<\/p>\n<\/p>\n