Houston’s Office Market Rebounds in Q2 2025: Positive Absorption Signals Optimistic Future
Houston’s office market turned a corner in Q2, posting its first quarterly net absorption gain in a year and pushing year-to-date totals into positive territory.
Although leasing volume softened, construction remains limited and sublease levels have stabilized suggesting an improving market heading into the second half of 2025.
Key Takeaways for the Houston Office Market
- Net absorption positive
- Strong activity in Class A
- Flight to quality continues
- Limited construction
Houston Highlights
Houston’s office market reported positive absorption for the first time in a year, with 348,414 SF of positive net absorption during the second quarter to finish mid-year 2025 with a positive 286,575 SF. Tenants are continuing the flight-to-quality trend, with Class A properties posting 313,363 SF of net absorption. Leasing volume has slowed from last year, with quarterly activity decreased to 2.2M SF — representing 17.9% of the previous quarter’s volume and 47.8% of the same period last year. The overall vacancy rate improved to 27.4% after reporting a record-high 27.9% for the last two quarters and slightly below the 27.5% from a year ago. Construction activity remains limited, although a new building broke ground during the second quarter in the Allen Parkway/Midtown submarket, becoming the fourth building underway in the Houston area. Class A average asking rents decreased to $33.20 PSF, down from last quarter and from $35.54 PSF year over year, while overall gross asking rents reported a marginal increase to $29.00 PSF from last quarter but a decrease from the same period last year.
Executive Summary
Houston’s office market demonstrated a meaningful turning point in the second quarter, achieving positive net absorption of 348,414 square feet – its first quarterly gain in a year. This rebound more than offset the modest contraction recorded in the first quarter, pushing year-to-date net absorption to a positive 286,575 square feet at midyear.
More than half of Houston’s submarkets posted positive absorption, but gains were largely driven by activity in four areas: FM 1960, Southwest, Central Business District (CBD) and The Woodlands. A major driver was Blue Cross/Blue Shield of Texas, which represented the largest single absorption of the quarter at 132,599 square feet — fully occupying the West Belt Office Center I building in the Southwest submarket.
Houston’s overall vacancy rate edged down to 27.4% after holding at a record-high 27.9% for the last two quarters and slightly lower than the 27.5% vacancy from a year ago. Newer buildings continue to outperform: properties built since 2015 report much lower vacancy — 14.4% overall and just 11.8% for direct space — highlighting the flight-to-quality trend.
One major survey change to the totals this quarter was the removal of 1.2 million square feet in Sugar Land. The Sugar Land City Council recently approved plans to redevelop the former Fluor site into Lake Pointe Green, a 53-acre, mixed-use development that will feature luxury housing, expanded park space, civic amenities, and potential commercial offerings.
Leasing Activity
Leasing momentum slowed this quarter, with total leasing activity falling to 2.2 million square feet — below prior quarterly averages. However, Class A buildings continued to dominate demand, capturing 64.9% of all leasing, underscoring occupiers’ preference for quality space and strategic relocations over market exits.
The quarter lacked major large-scale deals but recorded steady, mid-sized leasing. The biggest transaction was a renewal by Black Stone Minerals for 55,082 square feet at 1001 Fannin in the CBD. Other notable signings included Consolidated Asset Management Services leasing 50,506 square feet at 910 Louisiana, also in the CBD, and Bechtel expanding into 50,544 square feet of sublease space at 2103 CityWest Boulevard in Westchase.
The CBD led all submarkets for leasing activity, totaling 274,072 square feet (12.4% of all activity), closely followed by The Woodlands with 272,436 square feet (12.3%) and the West Loop with 267,584 square feet (12.1%).
Construction and Rents
New construction remains limited due in part to increasing building costs. Only one new project — 127,651-square-foot Autry Park — broke ground this quarter in the Allen Parkway/Midtown submarket and is 74.6% preleased to three tenants. The overall four-building construction pipeline of 647,221 square feet is 73.3% preleased. No new buildings delivered this quarter, further slowing the pace of new supply.
Asking rents are mixed. Class A average rents fell both year over year and quarter over quarter, while overall rents ticked up this quarter but remain just below year-ago levels. Sublease availability remains steady at levels that have not materially impacted broader vacancy trends.
Outlook
Houston’s office market remains in a cautious recovery phase. The return to positive net absorption signals that tenants are still actively reshaping their footprints. With limited new construction and stable sublease levels, vacancy may hold steady — but sustained recovery will depend on stronger leasing momentum through the remainder of 2025.
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