Potential shift looms in Houston’s tenant-friendly office market

Tenant Improvement allowances in Houston pre-pandemic and post-pandemic

Houston's office market remains tenant-friendly, with a record-high vacancy rate of 26.6% due to an influx of space following the 2015 oil bust and COVID-19 events. Faced with a surplus of available space, landlords are motivated to strike deals, but rising costs of capital and construction are squeezing their ability to offer the same level of tenant-centric lease terms.

This paradigm is especially true for buildings with loan challenges and low base rental rates. The results of rising costs of capital and construction as well as loan challenges are evident through tenant improvement allowances shrinking by 6.5% from their 2021 peak to an average of $63/RSF and average free rent periods declining to 11 months on a 10-year lease from 12 months for a commensurate term length. While these concessions keep average effective rents 2.3% below pre-pandemic levels, this trend suggests a potential shift.

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