Distress Could Help Triple Office Investment Sales Dollar Volume In Houston This Year

There has been far more action than money in Houston’s office investment sales market over the past 12 months, but those trends could be on the brink of syncing.

2024 office sales were in line with historical averages, while the dollar volume was down significantly, thanks to plummeting property values, according to Marty Hogan, managing director in the Houston office of JLL Capital Marketing Americas.

Now, Hogan says larger transactions are on the horizon and volume could increase as much as twofold in 2025.

“The largest office building that we sold last year was $47M,” Hogan said. “That’s really small in the office world when you have these 1M SF towers all over the place.” 

Thirty-three office buildings sold in Houston last year, in line with the annual average of 32 since 2018. The highest number of transactions was 42 in 2022, and the lowest was 24 in both 2020 and 2023. 

But all that activity translated into a total sales volume of roughly $627M, down sharply from the seven-year historical average of $1B, according to JLL data.  Meanwhile, the average price per SF cratered to $86 last year, down from $122 in 2023 and $227 in 2019.

This year is seeing significant activity already, though.

“We have already sold two [buildings] in January. We have another eight that are under contract and should close by the end of the first quarter,” Hogan said. “And we have another nine that we’ve either been hired to sell or are in the market to sell.

“Knock on wood, we should have half the number of transactions of all of last year in the first quarter of this year.”   

JLL ended last year with a string of transactions in Houston, including a 207K SF office building purchased by Radler Enterprises, a 187K SF office building bought by Galium Capital and a 105K SF office property bought by a private investor.

Just Thursday, JLL announced that LM & Associates purchased Timberway One, a 94K SF office building at 15990 N. Barkers Landing Road in Houston’s Energy Corridor. 

Yet the number of sales doesn’t mean it’s become an easy market for owners listing buildings. The Federal Reserve’s interest rate cuts haven't yet offered any relief to the office investment sales market since the yield on 10-year Treasury bonds hasn't fallen, Hogan said. 

The yield on 10-year Treasurys has risen roughly 100 basis points since the Federal Reserve began making cuts in September and then held the benchmark rate steady last month. The benchmark rate impacts floating-rate loans, but the 10-year Treasury rate’s rise makes it more expensive to get a long-term or fixed-rate loan.

The 10-year Treasury rate makes it hard for office building owners who had loans expire in the past couple of years to refinance. Still, distress isn't the biggest factor pushing office building sales in Houston, Hogan said.

“In 2024, it was only about 10% or 15% of the transactions [that] were directly lender-driven, and about half were voluntary sales from institutions,” Hogan said.

Institutions might divest office assets for several reasons, including having an overallocation to office and redemption queues for funds, he said. In some situations, sales came from developers building an office building, leasing it up to stabilization, then selling it.

“They go, ‘Well, we're not really in the business of owning this thing long-term. It may not be the best time … and we understand that the value is down, but it's time to sell,’” Hogan said.

Those kinds of sales will keep happening, but more lender-driven sales should enter the picture and boost volume this year, he said. Lender-driven sales in JLL’s pipeline sit at between 50% and 60% of transactions, rather than the 10% to 15% the brokerage had been seeing, he said.

That could be because lenders are no longer kicking the can down the road, owners are realizing they owe more than a building is worth and are reluctant to invest more in it, and a broader recovery from pandemic softness, he said. 

“I don’t think it’s going to be like gangbusters where we’re going to sell 50 office buildings, but it’s off to a busy start,” Hogan said. “We expect it to be another active year.” 

Plenty of factors are motivating investors to buy in Houston despite the financial environment. Those include population growth, job growth and a faster return-to-office rate than most other cities, Hogan said.

“The economics are great, the [gross domestic product] of Houston is doing really well, and maybe it's a good time to go buy some office buildings,” he said.

Some of those sales are bound to involve buildings larger than any sold last year. 

“That’ll swing the needle a little bit further in terms of dollar volume. … We could have the same number of trades, but our volume could be three times what it was last year,” Hogan said.