Flight-To-Quality Could Save Houston’s Office Sector

It’s no secret that Houston’s office sector has been reeling, but Central Houston Inc. CEO Kris Larson still has a positive outlook on the downtown office market.

Larson cites the ongoing flight-to-quality trend among reasons to be optimistic. It will pay huge dividends for the city, he said, as companies continue to flock to newly-built or renovated offices to overcome work-from-home, the Houston Business Journal reported.

“Seventy percent of all our downtown office space is Class A space, and 36 percent has either been constructed or renovated since 2020,” Larson told the outlet. “We also have another 375,000 square feet of Class A space under construction.”

Firms upgrading their office digs in this flight to quality contributed to a 3.8 percent spike in average asking rents in the third quarter, he said. Tenants leased a total of 1.4 million square feet of downtown office space during the same period. More than 4,000 companies are tenants in the area.

However, there is still 5 million square feet of “unmarketable, obsolete” office space downtown, which presents opportunities for conversion to residential use. Recent guidance by the Biden administration aims to make such conversions easier.

Central Houston plans to implement more ground-level retail to help create a welcoming environment for residents and workers. Larson also wants more “affordable, attainable housing,” he told the outlet.

The downtown area has seen a 5.4 percent increase in residential units over the past year, with 2,692 more under construction.

The flood of new development in downtown Houston is another reason for optimism. The Texas Legislature passed a law this year that allows the city to receive a portion of hotel-occupancy taxes for improvements to the George R. Brown Convention Center and the surrounding area. The Houston Astros are also planning a hotel and entertainment center connected to Minute Maid Park.

Besides that, the Theater District is undergoing improvements, with the transformation of Jones Plaza into the Lynn Wyatt Square for Performing Arts and a $60 million renovation of Jones Hall. These developments are expected to boost nighttime foot traffic and enhance entertainment offerings in downtown Houston.

—Quinn Donoghue