Demand for Class A Properties Remains Healthy and Rental Rates Rise
EXECUTIVE SUMMARY
In Q2 2026 the Houston office market experienced positive net absorption, lower vacancy, and decreased leasing activity. Net absorption improved to 590,137 sq. ft. from -195,190 sq. ft. recorded in the previous quarter, with Class A properties contributing 928,397 sq. ft. and Class B -382,225 sq. ft. Vacancy edged down to 26.6%, a 20-basis-point decrease from Q1 2026. Leasing activity decreased approximately 10% to 2.7 million sq. ft. Construction deliveries totaled 227,646 sq. ft., and the under-construction pipeline stands at 348,585 sq. ft. Rental rates increased 1.8% quarterly to $31.38 per sq. ft.
SUPPLY & DEMAND
KEY MARKET INDICATORS
MARKET OVERVIEW
HOUSTON ECONOMIC UPDATE
Houston’s labor market continued to expand at a measured pace, adding 21,300 jobs year-to-date ending May 2026 for total nonfarm employment of 3.51 million, up 0.6%. Growth remained concentrated in healthcare and social assistance (+7,600 jobs, +1.9%) and professional and business services (+7,000, +1.2%), while financial activities (−2,900), wholesale trade (−1,700), manufacturing (−1,300), and information (−1,200) shed positions. Office-using employment reached 776,600, up 2,900 jobs (+0.4%) year over year. The metro unemployment rate stood at 4.3% in April, up 30 basis points from a year earlier, as the labor force contracted slightly (−0.4%).
The broader economy remains a national heavyweight: Houston’s real GDP of $550.8 billion (2023) ranks seventh among U.S. metros after growing 5.4% year over year. Houston’s metropolitan population reached 7.80 million per the latest American Community Survey, with median household income of $81,417 (+2.5%). Local inflation cooled to 2.8% year over year (April), and home prices rose a modest 1.3% (Q1 2026) while residential permitting slowed, with 24,488 units permitted year-to-date through May, down 17.6% from a year ago.
NET ABSORPTION TURNS POSITIVE IN Q2 2026
Net absorption was positive 590,137 sq. ft. in Q2 2026, up from -195,190 sq. ft. in Q1 2026. Class A properties contributed 928,397 sq. ft., while Class B properties recorded -382,225 sq. ft. At the submarket level, 15 submarkets posted positive total absorption, with the Katy Freeway East submarket recording the strongest gain and the Energy Corridor submarket posting the largest decline. Notable Q2 2026 move-ins include Dow Chemical Co., which moved into 203,000 sq. ft. at CityCentre Six, and Boardwalk Pipeline Partners taking occupancy of 143,253 sq. ft. at 990 Town and Country.
QUARTERLY LEASING VELOCITY DECREASES 10%
Quarterly leasing velocity—comprised of new leases and renewals—decreased approximately 10% to 2.7 million sq. ft. from 3.1 million sq. ft. in Q1 2026 and is down approximately 18% year-over-year. Notable leases signed in Q2 2026 include Mitsubishi Corporation’s 91,761 sq. ft. lease at 1100 Louisiana in the CBD and the renewal of IBM for 42,627 sq. ft. at 12301 Kurland in the Gulf Freeway/Pasadena submarket. Superior Energy also signed a 56,256 new lease at 8020 Katy Freeway.
VACANCY RATE DECREASES
The overall vacancy rate in Houston’s office market decreased to 26.6% in Q2 2026, down 20 basis points from 26.8% in Q1 2026 and up 10 basis points year-over-year. Class A properties reported a vacancy rate of 27.2%, while Class B properties reported 25.8%. Direct vacancy was 25.4%. The flight to newer buildings by tenants in the market has continued with the vacancy rate for Class A buildings built since 2015 declining to 13.5%.
AFTER Q2 DELIVERIES, PIPELINE AT HISTORIC LOW
New office deliveries in Q2 2026 totaled 227,646 sq. ft. down from 464,450 sq. ft. the prior quarter. The under-construction pipeline stands at 348,585 sq. ft. across 6 properties. The pipeline fell 39.5% over the quarter and declined 74.1% year-over-year. The largest project underway remains Autry Park in the Midtown submarket with 127,651 sq.ft. scheduled to deliver 2026 Q4 at 95.7% pre-leased.
INVESTMENT SALES TRENDS
Houston office investment sales in Q2 2026 were dominated by large, distressed and value-add trades. The quarter’s headline deal was the 16-building, ±4.5M sq. ft. Greenway Plaza campus, acquired by Interra Capital Group out of court-appointed receivership via a $416.2M CMBS loan assumption, with the new owner pursuing an active repositioning strategy for the 53-acre infill campus. Numerous Class A buildings are on the market, including Pennzoil Place, 1201 Louisiana, 1415 Louisiana, Park Towers, Energy Center II, Eldridge Place, and Enclave Place are on the market or under contract to sell with investment sales interest in Houston significantly increasing. Owner/user acquisitions were another recurring theme, including Microvast’s purchase of the near-vacant 2929 Briarpark building for its Westchase HQ and Spring Branch Community Health Center’s purchase of 8945 Long Point from Forney Construction.
ASKING RENTAL RATES INCREASE
Houston’s full-service average rent stands at $31.38 per square foot, up 1.8% for the quarter and up 8.4% year-over-year. At the submarket level, CBD has the highest average rates, while Greenspoint/North Belt has the lowest. On a gross-equivalent basis, Class A asking rents averaged $35.39 per sq. ft. and Class B $23.47.
