CBRE Analysis: Office Conversions in Houston Continue to Rise

Office conversions are on pace to more than double their recent annual average this year, with momentum picking up due to increased incentives and other support from state and local governments, according to new insights from CBRE.

Across 40 CBRE-tracked markets, Houston has the fourth-highest percentage of its office inventory planned or underway for conversions at 2.3% or 5 million sq. ft. as of Q3 2023. This equates to seven projects across the Houston Metro area. For context, there were 1.2 million sq. ft. of conversions completed in Houston between 2016 – 2022. The increase in square footage in the pipeline signals larger conversion projects are underway.

Of the 5 million sq. ft. of office space designated for conversions, office-to-mixed use (40%) and office-to-multifamily (30%) projects make up the highest percentages. The remaining projects that are underway or planned are office to various other uses, like hotels and a medical hospital (28%) and office-to-industrial conversions (3%).

“The Houston office market statistics reflect a high vacancy rate, but the true competitive availability of office space is much smaller because there are many buildings that do not compete for tenants due to their age and condition,” said John Spafford, Executive Vice President at CBRE. “The availability of older, noncompetitive office buildings and continued population growth make Houston a prime candidate for conversions to multifamily and other use, specifically in submarkets like Galleria/Uptown, West Houston and Downtown.”

National Perspective

Across 40 CBRE-tracked markets in the U.S., 60 million sq. ft. of office conversions are planned or in progress, comprising 1.4% of the total U.S. office inventory, up from 1.2% in last year’s fourth quarter. CBRE analyzed the number of office conversions in major U.S. cities since 2016 and found nearly 100 projects are expected to be completed this year. This a sharp increase from the annual average of 41 completed from 2016 to 2022.

In the U.S., 60 million sq. ft. of office conversions are planned or in progress, comprising 1.4% of the total U.S. office inventory, up from 1.2% in last year’s fourth quarter.

Nearly half (48%) of office conversions this year are to multifamily residential complexes. Office-to-mixed-use conversions are becoming more common, accounting for 18% of the pipeline, up from 7% in Q4 2022. Meanwhile, conversions of offices to life sciences labs now account for 19% of activity, down from 28% in last year’s fourth quarter.

Top 10 Markets for Office Conversion Measured by Total Square Feet Planned/Underway in 2023

Looking ahead, CBRE is tracking 60 conversion projects scheduled to be completed in 2024, including 42 currently underway with another 18 in planning stages.

“Conversions offer one solution, but they will not resolve the challenges facing the office market on their own,” said Julie Whelan, CBRE Global Head of Occupier Research. “Cities will need to be strategic in their approach to transform former office districts into mixed-use areas that are highly desirable to people and businesses.”

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