High Vacancies Cost Dallas, Houston $3B in Office Rents Yearly

According to The Real Deal, Dallas and Houston—two of the largest cities in Texas—are facing a troubling economic issue: high office vacancy rates are costing them billions in potential rental income. 

By The Numbers

At the end of Q1, Dallas had 53 MSF of empty office space, ranking third in the U.S. behind New York and Chicago. Houston followed closely, with 50 MSF, ranking fifth nationwide. 

This surplus of vacant office space contributes to an annual loss of $1.62B in Dallas and $1.56B in Houston, according to a report by Bisnow citing Cushman & Wakefield data.

Economic Ripple Effect

The office vacancy problem in these cities isn’t just a real estate issue—it has far wider economic implications. Empty office buildings mean property owners are struggling with reduced income, affecting their ability to cover mortgage payments, maintenance, and other operational costs. 

James Barnes of NeoMam Studios pointed out that these financial pressures could eventually strain the tax bases and economies of both cities.

“As vacancies persist, it’s going to eat into the tax base,” said Jay Wall III of Moody Rambin in Houston. This could force local governments to make difficult decisions about taxes and public services, potentially triggering a cycle of fiscal challenges.

The Root of The Problem

Texas’ high office vacancy rates can be traced back to a historic construction boom fueled by affordable land and a growing population. 

However, the shift to hybrid and remote work has drastically reduced demand, especially for older buildings that are now less appealing to tenants. 

Scott Morse, managing partner at Citadel Partners, noted that much of the vacancy is concentrated in properties built before 2010, indicating a mismatch between current market demand and the existing supply of office space.

Ownership groups that purchased properties when interest rates were low are now struggling to maintain profitability as rent rolls decline. Although the state has seen a population boom, the demand for traditional office space has not kept pace, leaving many owners to navigate reduced income streams while managing the same mortgage obligations.

Call For Redevelopment

The situation in Houston reflects similar issues as in Dallas. Both cities face a glut of outdated office inventory that may not find tenants without significant redevelopment. 

As analysts predict, the problem will persist until older, less functional buildings are either upgraded or demolished. “The kitschy response to that is that Houston is not overbuilt; it’s under-demolished,” said Wall, highlighting the need for more strategic redevelopment or removal of obsolete buildings to address the vacancy crisis.

In Summary

The high office vacancy rates in Dallas and Houston are costing landlords billions in potential income and threatening to erode the cities’ tax bases. If this continues, it could lead to broader economic consequences, forcing local governments to make difficult decisions on taxes and service funding. 

Experts suggest that significant portions of the existing office inventory may need to be redeveloped or removed to align with modern workplace needs. Local governments may also need to explore new policies or incentives to encourage redevelopment and prevent further economic strain.