Economist: Houston’s CRE Market May Be Flat, But It’s Ready To Weather Storms Both Natural And Political

While former President Donald Trump resuming office could bring a mixed bag for Houston’s commercial real estate market, one economist expects it to all shake out to a flat line.

Come January, it could become the norm for people to work in the office at least four days a week, yet Houston office rental rates have fallen significantly over the past decade, Patrick Jankowski, senior vice president and chief economist for the Greater Houston Partnership, said at Transwestern’s TrendLines event on Wednesday.

And while retail and industrial are two of the strongest asset classes in the Houston area, Trump’s plan for tariffs could slow down Port Houston’s container movements and its economic impact.

“Where I see commercial [real estate] right now, it’s not going up, it’s not going down, it’s just going sideways,” Jankowski said. “I don’t see anything negative out there, but right now, I don’t see anything giving it a huge boost. Of course, that may change.” 

One tailwind for Houston is a continued inflow of population, he said. More than 92,000 people migrated to Houston from June 2022 to July 2023, according to U.S. Census Bureau data. Houston gained about 1.2 million people over the last decade, Jankowski said.

The numbers have fluctuated, reaching a low of 76,100 people in 2018 and a high of 172,000 in 2014. But counting babies being born and people dying, adding 120,000 people per year is a good rule of thumb for Houston, Jankowski said.

“I’m very much of the camp that we’re not going to have a recession for at least another two years,” he said. “But if we do have a recession, Houston is so much better positioned for whatever comes its way than the other metropolitan areas.” 

That is proven by the region’s job growth, Jankowski said. The Houston region gained 626,200 jobs between May 2020 and September 2024. This means the city has recovered 174% of Covid-related job losses.

But some asset classes have benefited from the migration more than others. Office is still suffering from pandemic-spurred changing work patterns.

Houston office base rents averaged $21.49 per SF in the third quarter of 2015 and $21.19 per SF in Q3 2024, according to CoStar data. That looks flat, but considering inflation, it’s down about 25%, Jankowski said.

“A fun fact on office that’s not very fun is that about 50% of the CMBS loans that expire between now and ’28 have a coverage ratio of less than 1.2 and they have an interest rate of under 5%,” Transwestern Southwest President Kevin Roberts said.

“Any refinance scenario, it just shows you the wall of maturities that’s going to be a real issue for Houston. It’s not just Houston, it’s Texas and national as well.” 

The changes in the office market will also bring opportunities, though, Roberts said. An ongoing shift in office ownership and asset pricing will accelerate, leading to generational investment opportunities for those with proper targeting strategies, according to the Transwestern house view.

There is also good news in that people are starting to come back to the office wanting to be seen and advance their careers, Jankowski said.

“If you're one of the SVPs, you're pretty much in the office five days a week,” he said. “The VPs are picking up on that. They're in the office about five days a week.”

Broadly, people might not come back five days a week, but four-day-a-week attendance will likely become more common, he said. 

On the other end of the spectrum, “everything’s great for industrial,” Roberts said, garnering a laugh from the crowd. There was some lack of discipline before capital constraints forced construction to slow, but consumer demand is helping absorption stay strong, he said.

Port Houston is an asset to the local industrial market, Jankowski said. The port’s 12-month total container movements have increased from about 1.5 million units in 2014 to more than 3.3 million units in 2024, according to the Port Houston Authority.

Those units tend to take up warehouse space, meaning industrial space continues to be built and absorbed, he said. But Trump’s proposed tariffs could slow that growth. 

“I am concerned that if we have across-the-board tariffs, it will slow down this part of the economy,” Jankowski said. “It’s like a tax. A tariff is going to raise the cost of something you purchase … If something becomes more costly to purchase, people purchase less of it.” 

But right now, imports and exports are at a good point, he said.

The real star of Houston’s asset classes is retail, the presenters said. 

“Retail is off the charts,” Roberts said.

Retail follows rooftops, so it doesn’t tend to get overbuilt, Jankowski said. As the population continues to grow and expand outwards, he expects retail to follow.

Overall, Houston has a healthy, growing and resilient economy, Jankowski said. Storms like Hurricane Beryl happen, but infrastructure will adjust to handle it just like it did after Tropical Storm Allison, he said.

“We’re figuring it out. We’re going to fix it and it’s not going to be an issue,” he said.