executive summary
In recent years, headlines such as “The office is dead” (Computerworld, January 10, 2023), “Why the traditional office is dead” (Forbes, July 20, 2023) and “The return to the office is dead” (Stanford economist for CNBC, November 20, 2023) have painted a bleak picture for the office sector.
Since the pandemic hit 2020, media pundits have been quick to proclaim the death knell of traditional office space, often with sensationalist enthusiasm. Combined with rising interest rates and refinancing challenges facing older office buildings, even local conversations have echoed sentiments like “commercial real estate is going to crash.”
But the reality is more nuanced. Large companies are adopting hybrid work schedules but still requiring employees to come into the office part-time. Now, we're seeing a shift toward quality office space that increases employee satisfaction and productivity. Demand for amenities is driving this “flight to quality” trend not just in Houston but across the country.
For example, Class A office space along the I-10 corridor from Voss to Beltway 8 boasts a vacancy rate of just 5% thanks to modern architecture, on-site amenities and prime locations. This trend is mirrored in other Houston submarkets, including the Energy Corridor, The Woodlands, Galleria and Downtown, where true Class A properties have lower than average vacancy rates.
If an office market collapse occurs, it will likely be gradual and localized, varying by building and submarket. For occupiers, this means fierce competition for quality Class A space. In response, institutionally owned Class B properties are expected to undergo significant upgrades to remain competitive with newer properties.