Continued bifurcation as trophy assets tighten and lower‑tier buildings struggle

Houston, TX – Avison Young, a global real estate advisory firm, today released its First Quarter 2026 Office Market Report for Houston. The market posted 407,000 square feet (sf) of negative net absorption in Q1 2026, marking it the second consecutive quarter of occupancy losses following the market’s strongest annual absorption gain since 2015. Despite this negative net absorption, which is comprised primarily of lower‑tier properties that face persistent vacancy and leasing pressure, trophy and Class A+ assets continue to tighten.

Houston’s office market is increasingly defined by a sharp divide between high‑performing assets and obsolete inventory. While the overall vacancy rate remains elevated at 27%, 44% of all vacant space is concentrated within just 16.4% of the market’s inventory. These distressed assets—primarily older, under-amenitized buildings—face mounting headwinds. In contrast, trophy and Class A+ properties recorded approximately 350,000 sf of positive net absorption, pushing direct vacancy in this segment down to 11.9%, its lowest level since 2015. Full‑service gross asking rents for top‑tier buildings surpassed $50 per sf for the first time, with trophy assets reaching $57.71 per sf, up 5.9% year‑over‑year.

“Houston’s flight‑to‑quality dynamic is no longer a trend—it’s the market reality,” stated Anthony Squillante, Principal and office tenant representation specialist at Avison Young. “Tenants are prioritizing modern, amenity‑rich environments to support talent and culture, and the scarcity of premium blocks means companies need to engage the market earlier and more strategically than ever.”

Leasing activity totaled 2.5 million sf, trailing the 10‑year quarterly average and down 24.6% year‑over‑year. However, tenant requirements are showing signs of improvement, with demand continuing to concentrate in high‑quality buildings. Class A tier 2 assets captured 57% of year‑to‑date leasing activity, the highest share since 2019.

The construction pipeline remains muted, with only 387,000 sf delivered year‑to‑date and 273,000 sf underway and 100% pre‑leased. Elevated construction costs, up 40% over the past five years, continue to limit speculative development. In the longer term, this imbalance may support highly targeted premium projects.

Houston’s office investment has experienced a notable resurgence over the past 12 months, as private buyers and owner-users capitalize on deeply discounted pricing. This increase in transaction activity has pushed average sales prices to a post‑pandemic high of $137 per sf. Despite this improvement, weighted average pricing remains approximately 53% below peak 2015 levels, underscoring the depth of the market’s longer‑term valuation correction.

As of February 2026, Houston's office visitation recovery reached 67.8% of pre-pandemic levels, surpassing the national average of 63.8%. The uptick in activity reflects a strong corporate presence and a business culture that prioritizes in‑person work over hybrid arrangements. Despite monthly fluctuations, the upward trajectory signals a sustained and healthy recovery. Houston now ranks third nationally among Tier 1 office markets, trailing only Washington, D.C. and Manhattan.