HOUSTON - TelAve -- Key Takeaways
Office market fundamentals continued to improve.
Direct asking gross rents increased 1.3% quarter over quarter while direct vacancy declined 20 basis points, providing additional evidence that market conditions continue to stabilize.
Flight to quality remains the market's defining trend.
Class A properties continue to outperform as occupiers prioritize workplace quality, operational efficiency, and employee experience.
Positive absorption returned in a meaningful way.
Net absorption improved by more than 773,000 square feet from the prior quarter, signaling healthier tenant demand and gradual occupancy gains.
Developers remain highly disciplined.
The construction pipeline declined another 30.2% quarter over quarter to just 337,651 square feet, limiting future supply and supporting long-term market balance.
Capital remains selective, but active.
The acquisition of Greenway Plaza highlighted continued investor interest in premier office assets, while value-add opportunities continue attracting disciplined capital.

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Employment continues to support office demand.
Steady job growth in professional services and healthcare provides a stable foundation for future leasing activity despite slower overall hiring.
Houston's office market continues its gradual transition toward recovery.
Improving absorption, resilient rental rates, limited new construction, and selective investment activity all point toward continued stabilization through the remainder of 2026.

Direct Asking Gross Rent VS. Direct Vacancy Rate
PRICING STABILITY & IMPROVING MARKET FUNDAMENTALS
Office market fundamentals continued to improve during the second quarter, as direct asking gross rents increased while direct vacancy edged lower. The weighted average asking gross rent rose to $31.48 per square foot, a 1.3% increase from $31.08 in Q1 2026 and 4.1% above the 2025 annual average of $30.26 per square foot. At the same time, the direct vacancy rate improved from 23.1% to 22.9%, a 20-basis-point decline, representing a 0.9% quarter-over-quarter improvement. Although vacancy remains historically elevated, these trends suggest landlords continue to maintain pricing discipline as tenant demand gradually improves.

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Houston's ability to preserve rental rates despite elevated vacancy remains one of the market's defining characteristics. Rather than competing solely on asking rents, many landlords continue to differentiate through tenant improvement allowances, leasing concessions, and building upgrades, particularly within Class A properties. As a result, asking rents have remained remarkably stable even as occupiers continue to lease space more selectively.
Looking ahead, limited new office construction and gradually improving market fundamentals should continue supporting rental rates through the balance of 2026. While vacancy is expected to remain elevated, improving occupancy and restrained new supply position the market for a measured recovery, with the strongest performance concentrated in well-located, institutional-quality office assets.

The full Q2 2026 Port Houston Market Report is available here: https://www.lee-associates.com/houston/2026/07/21/houston-citywide-office-market-report-q2-2026/