The “flight to quality” trend has been ensconced in the embattled office sector for much of the post-pandemic era, and it’s showing little sign of slowing in the major markets of Texas.
With overall tenant demand depressed in the aftermath of COVID-19, opportunities existed in droves for office users to upgrade their spaces and move into buildings with desirable amenities and vibrant surrounding neighborhoods. In doing so, these companies sought to incentivize their employees to come back to the office. Simultaneously, owners that invested in wellness features and activation programs for their properties sought to gain a leg up on the competition — and make tough conversations with lenders a bit more palatable.
Whether or not those initiatives worked as intended undoubtedly varies greatly from company to company and owner to owner. But after multiple years of stagnant occupancy and rent growth, the targeting of seemingly superior buildings and locations has come to represent more than just opportunistic decision-making by tenants. It’s a movement that has created visible delineation among winning and losing submarkets, a strategy that embodies basic financial prudence and perhaps a necessary evil — assuming that office usage is finally starting to rebound in a meaningful way.
A number of brokers representing different markets in Texas believe that it is.
“There’s been a big push to return [to offices] lately,” says Ryan Buchanan, senior vice president at CBRE’s Dallas office. “The market might have been at 50 percent occupancy on a semi-daily basis at the beginning of the year, but now we’re stepping even higher. Insurance, banking, legal, engineering — those groups are back [in the office] four to five days per week in most cases. And tech companies that have been the last users to push more than a couple days in the office are now pushing to three or four days.”
According to fourth-quarter 2024 data from CBRE, the national Class A vacancy rate is 15.3 percent, while vacancy across all other subcategories of office product is 19.2 percent. The fourth quarter saw 10.3 million square feet of net absorption across the country, the highest quarterly total in three years, while total leasing activity for the period was 62 million square feet — nearly a 25 percent year-over-year increase. The total volume of space available for sublease also decreased in the fourth quarter, dropping 50 basis points year-over-year and now accounting for 3.9 percent of total U.S. office inventory.
While brokers interviewed for this story confined their analysis to private-sector tenants, it should be noted that major return-to-office (RTO) mandates have also been handed down in the public sector. In recent weeks, both President Donald Trump and Texas Gov. Greg Abbott have ordered federal and state employees to resume working in their offices five days per week. Local news sources report that Abbott has marked Monday, March 31, as the official RTO date for state workers.
Where’s The Action?
Buchanan’s assessment speaks to the diversity of the Dallas office-using base, which has contributed to overall RTO efforts in that market. He also notes that Dallas-Fort Worth (DFW) typically sees overall office vacancy that is above the national average due to having so much inventory across the metroplex. But at this point in the cycle, there’s another factor that Buchanan sees as even more instrumental in further entrenching the flight-to-quality trend.
“Because of where the debt markets have been, this is probably the dryest three- to five-year period for new office construction across DFW, which means the flight-to-quality pinch will [soon] be even greater,” he says. “If you’re a large office user looking for space in a hot-button submarket like the Uptown or Preston Center areas, you really can’t find large blocks right now.”
Buchanan adds that each of those submarkets has a different sweet spot with regard to deal size, but that the two share one commonality on this front.
“In Preston Center, the sweet spot is sub-10,000 square feet; for Uptown, it’s about 10,000 to 25,000 square feet, but it’s really hard to find full-floor space [in either submarket],” he says.
Some (relatively) recent and decent deals inked in Uptown include:
• Wingstop’s new headquarters deal for 112,000 square feet across four floors at One West Village
• Deloitte, Sidley Austin LLP and Bank OZK each taking four full floors at 23Springs, Granite Properties’ 626,215-square-foot project that is nearing completion
• Legacy Knight, Commit Consulting and Mitsui Fudosan America all signing leases at Maple Terrace
• Law firm Paul Hastings LLP preleasing 37,000 square feet at a 1 million-square-foot development in the Knox-Henderson district
Brokers in Houston say they’re seeing the same thing in terms of companies slowly having more people in the office for more overall days.
“Based on badge rates and surveys we’ve done with tenants, we’re seeing that the number of days in the office on average is generally about three per week but pushing closer to four as we’ve moved into 2025,” says Anya Marmuscak, executive vice president at JLL’s Houston office.
“In the past three months, we’ve seen a heavier push to return to office among big companies,” adds Ray Lopez, vice president of the occupier advisory team in Colliers’ Houston office. “Halliburton is requesting that everybody come back; another oil and gas company that’s big in Houston is mandating that employees spend four days in the office and letting Friday be a work-from-home day.”
Lopez adds that while their status as private entities sometimes keep them off the media radar, many smaller,
non-energy companies in Houston are still pursuing RTO campaigns.
“In general, there is a desire to be back in the office for law firms and engineering companies — the question is what the right balance is,” he says.
Marmuscak concurs.
“The tenant requirements we’re seeing [today] that are driving demand are led by banking, finance and insurance, together equaled by energy users,” she says. “Demand, tour activity and requests for proposals for space are about equal between those industries, followed by engineering and design groups and law firms.”

Both Houston brokers agree that as in Dallas, certain submarkets in the Bayou City are outperforming the rest of the market. Marmuscak and Lopez both cited the Energy Corridor/Katy Freeway East as the most obvious example, while Lopez also sees healthy demand within higher-end buildings in the Westchase District. Among the deals that have recently closed in those areas are:
• Technip Energies taking 171,600 square feet at 15377 Memorial Drive
• Consor Energy’s deal for 26,074 square feet at Eldridge Oaks
• SM Energy’s lease for 20,324 square feet at One Eldridge
• Drilling Tools International committing to 16,988 square feet at The Towers at Westchase
• PhiloWilke Partnership taking 14,729 square feet at The Towers at Westchase
The ebbs and flows of office absorption and development in Houston have traditionally mirrored movement in energy prices. For this reason, the market has added very little new product since 2015, a year in which a marked downturn in oil prices took root. Depressed energy prices led to an oversupplied office market that was recovering nicely when the pandemic hit and ground business to a halt. Today, the market is working its way back to those pre-COVID supply-demand levels.
“We’re just getting back to where we were 10 years ago when we had single-digit vacancies,” says Marmuscak. “We’re not there yet across the overall Houston market. But if you look at Class A, Tier 1 space in those [high-performing] areas, we’re back to single-digit vacancy with about a 20 percent spread between [vacancy in] older product and trophy or new-construction space. So flight to quality is as strong now as it’s been in the post-COVID era.”
As energy is to Houston, tech is to Austin, and Connor Atchley, senior vice president of agency leasing in Transwestern’s Austin office, says that those office users are also starting to come around, albeit at a slower pace.
“We’re seeing a slow transition [among tech users] back to hybrid schedules, primarily on Tuesday, Wednesday and Thursday,” he says. “Professional services users like law and engineering firms have largely returned to the office and are looking for new space or expanding where they can. From a return-to-office standpoint, these groups are making the transition faster in Austin. It’s starting to happen in tech, but [that industry] is still behind those other users.”
Unlike Dallas and Houston, however, Austin does have some healthy office construction activity in its pipeline, including in the downtown area. In that submarket, however, the flight to quality is more of an upgrade within the Class A space than an outright relocation from Class B to A.
A few months ago, a partnership between Lincoln Property Co., Phoenix Property Co. and DivcoWest topped out The Republic, a 48-story tower located at 401 W. 4th St. Shortly thereafter, the development team announced a 28,000-square-foot lease with law firm Pillsbury Winthrop Shaw Pittman. That transaction was preceded by another full-floor lease with Los Angeles-based law firm O’Melveny & Myers LLP. With its opening just months away, The Republic is more than 50 percent preleased.
In addition, a partnership between New York-based Tishman Speyer and Minneapolis-based Ryan Cos. is also nearing completion of ATX Tower, a 58-story mixed-use skyscraper that also houses 369 residential units. The building will have only 100,000 square feet of office space but has drawn interest due to its location and other offerings.
“Flight to quality is definitely happening in downtown Austin,” says Atchley. “We’ve seen national and international law firms in downtown Austin pivot from traditional trophy buildings like Frost Tower to newly constructed properties and work through that process.”
Atchley adds that Austin’s “second downtown,” The Domain, had a similar story for much of the past couple years.
“For a time, we saw groups capitalize on openings at The Domain, which had typically been occupied by full-building users,” he explains. “But as the market softened, tenants with full floors had new opportunities to get into The Domain and found ways to take advantage of those opportunities, which they hadn’t previously had. So the ability to move to quality spaces and change up product type was real.”
TI Wars
Desirable office spaces still exist within less desirable submarkets. Owners and tenants both seem to sense when they are leasing up or taking occupancy of such spaces. And when deals for those spaces come up for renewal, it’s generally in the best interests of both parties to keep things extra copacetic.
Although that sounds like a counterintuitive approach to a money-based decision, it is in fact raw dollars, in the form of tenant improvement (TI) allowances, that govern this thinking. All other factors being held equal, landlords don’t want to let a good tenant walk on a renewal — even if they anticipate strong demand for the vacated space — because they will have to invest in a new tenant build-out. By the same logic, tenants that have their spaces built out as befits their employees don’t relish the idea of coming out of pocket to restart that process in a new space. Not to mention that moving offices is simply a headache.
The fact that both sides may be willing to negotiate softly in these scenarios speaks to just how frighteningly expensive TI packages have become.
“On average, it costs at least $80 per square foot to build out space from shell or from a gut renovation, and that’s a barebones price,” says Buchanan. “For the most part in DFW, the only way a tenant is going to get that much in TI allowances is by signing a 10-year lease. Not a lot of companies can commit to that term without a termination option or some other type of flexibility, and even then, landlords aren’t always willing to capitalize to that level.”
Yet to some degree, for landlords, investing in those build-outs is not optional, notes Ryan Hartsell, SIOR, principal and managing partner at Houston-based brokerage firm Oxford Partners.
“Landlords who won’t or can’t invest in building out modern space are at a significant disadvantage,” he says. “If the space isn’t updated, it just doesn’t lease. The gap between a space that’s prepped and one that’s not is huge — it really can determine whether a deal gets done or not.”
Buchanan also says that even if tenants commit to double-digit term lengths, they still have to fight hard for that level of landlord contribution. He also notes that the degree to which landlords embrace this position can vary depending on their debt situation or business plan for the building in question.
“We do see more landlords being willing to shave off face rates [on renewals] than they were previously just because they’ve realized that they’re not going to be able to sell their asset as quickly as they once thought,” he explains. “If they’re long-term holders, they’re more willing to shave off the face rate, but we do see owners that thought they’d be flipping the asset quicker now being more willing to move off their face rates than they were previously. But shorter-term holders are still leaning more into free rent and [heftier] TI [allowances].”
“No tenant is willing to take on out-of-pocket costs for TI projects when alternatives exist, whether via sublease or a landlord offering a turnkey spec suite that allows the tenant to not have that kind of exposure,” says Atchley. “That [approach] has become the new baseline in the post-COVID era; exposure to building out space isn’t something that people have typically agreed to.”
Both parties’ need to avoid costly build-outs has gradually reduced the volume of sublease space available in most markets. Gluts still exist, but turnkey spaces that have been built out on speculative bases are in high demand.
“We’re starting to see the volume [of available space] decline and less competition between quality sublease space and landlord-direct space, which is different from a few years ago,” Marmuscak says of the Houston market. “Some newer blocks of sublease space that have come to market have been highly improved, furnished and built out and are competitive among tenants.”
Atchley agrees that for landlords, retaining tenants is almost always more cost-effective than backfilling space. But he also identifies a qualitative factor that further encourages smooth renewal negotiations on the part of landlords.
“Rental rates aren’t going to be significantly higher or lower if you renew, so there’s value in keeping the building leased because optics are important in this market,” he explains. “The more vacancy you have, the more leverage tenants will feel that they have.”
Financial Digging In
Speaking of variables that play into tenants’ negotiating strategies and priorities, sources say that getting a sense of vibrancy during a property tour is certainly a piece of that puzzle.
“The look and feel of the lobby, amenities and parking areas, as well as the building aesthetics and access to natural light and green space — you have to have those things to compete, especially in the Class A space,” says Marmuscak.
“It’s an intuitive feeling that you can’t quantify during a tour, but it does make a difference to see the building being used as the landlord intended and designed,” adds Lopez. “Landlords have made big pushes to activate spaces within their buildings, and seeing that [in action] does create a sense of ‘this what we’re paying for our employees to participate in.’”
He points out that the inverse can also be true — if there’s too much movement and traffic during a tour, it may dampen a tenant’s interest.
Yet tenant brokers ultimately have limited control over this factor. And in today’s market, building aesthetics and vibrancy are secondary in importance to vetting landlords’ financials and painting a clear picture of a building’s debt situation for their clients.
“One of the first things we share with tenants is information on ownership; we get to know their investors and managers and others behind the scenes and really understand what the [building’s] capital stack looks like and what challenges could come from that,” says Marmuscak. “We also look at the [rent] roll — where is the vacancy and exposure, what tenants are turning over? — because if you’re a small tenant moving into a mostly vacant building, it’s a different deal.”
“[Scrutinizing landlord financials] is extremely important and is part of our standard process,” adds Hartsell. “When submitting an letter of intent, we ask landlords about their debt structure, refinancing timelines and anything else they’re willing to disclose. We want to know if they’re in a solid position to actually execute the deal and fund the TI allowance.”
“If a landlord bought at foreclosure or has a low basis, we’re generally less concerned,” he continues. “But if it’s a distressed asset or one facing financial trouble, we often see major delays, limited decision-making or worse — deals that simply fall apart.”
This practice isn’t necessarily new in terms of conducting due diligence — just a response to modern-day turbulence in the capital markets. But what happens if a tenant falls in love with a space that is subject to financial distress at either the building or landlord level? Lopez says that doesn’t necessarily mean the deal will die.
“That [scenario] is typically reconciled by requesting an SNDA (subordination, non-disturbance and attornment) agreement for the lender to sign that says they’ll operate the building and not disturb the tenant,” he explains. “But we have to ask clients if they want to deal with that headache, because they’re focused on their businesses, and real estate is just a piece of that.”
— This article originally appeared in the March 2025 issue of Texas Real Estate Business magazine.