High-quality office properties have been at the forefront of the asset class’s post-pandemic recovery nationwide—a trend that continues in 2025, particularly in Houston, according to Avison Young’s first quarter market report. In Houston, trophy office assets were the primary driver of positive demand, with more than 340,000 square feet absorbed, largely due to LyondellBasell’s 318,000-square-foot relocation. By comparison, total net absorption for the quarter was 194,000 square feet, underscoring the outsized impact of trophy properties on the market’s performance.
"A clear preference for high quality, well-amenitized office spaces in prime locations is driving current occupier demand, leading to supply constraints in the top-tier market," the report said. "The rapid lease-up of the 1.2 million-square-foot Texas Tower, achieving 99% occupancy within three years, exemplifies this trend."
The positive trend also reduced the vacancy rate by 60 basis points from the previous three months to 26.8 percent.
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Sales increased from about $200 million in the fourth quarter to $277 million in the first three months of the year. Avison Young attributed this to investors seizing "opportunities to acquire heavily discounted properties." But that led to per-square-foot values dropping to $71.94 on average, which was the lowest seen since the early portion of the century, according to Avison Young.
"However, with transaction activity increasing since late 2024, PSF values appear to be stabilizing as investor activity adjusts to pricing corrections," Avison Young explained.
Office visitations in Houston were 63.4 percent of pre-pandemic levels in the market, as of February. That exceeds the national average of 61.3 percent.
But still, the leasing volume of 2.3 million square feet was below Houston's 10-year quarterly average. Avison Young said that it remained a tough environment for landlords to manage debt and liquidity.
That said, over the next two years, Avison Young envisions that approaching lease expirations will drive "a notable increase in space demand." The top recent lease went to Motiva Enterprises' 413,246 square-foot renewal in the central business district.
Avison Young also revealed that the four million square feet of office space that's under consideration for conversion could lead to a further decline in vacancy. In addition, the construction pipeline of 504,000 square feet, which is at a more than two-decade low, could lead to more positive results for landlords.
"This constrained pipeline, largely attributed to elevated construction costs and tightening lending standards, points to a prolonged period of limited new office supply," Avison Young predicted.
But it did add that "developers must weigh potential profit against the combined hurdles of high building costs and the growing difficulty in obtaining construction loans."
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