Commercial Real Estate Trends: Office Cap Rates in Texas Markets
As Texas continues to serve as a hotbed for commercial real estate (CRE) activity, office cap rates across major markets paint a nuanced picture of opportunities and challenges.
Using CoStar data, we examined office cap rate trends in major Texas cities, including Austin, Dallas-Fort Worth, Houston, and San Antonio.
These office cap rate trends reveal a forecasted decline in cap rates after an expected peak in 2025. This decline presents a strategic moment for investors to reexamine their portfolios.
Market Insights From the Data
Killeen and San Antonio: High Cap Rate Opportunities
These markets have consistently exhibited higher cap rates, particularly Killeen, which sits at 11.2% in Q1 2025—the highest among the featured Texas cities.
San Antonio follows closely at 10.2%, presenting an intriguing opportunity for investors seeking higher yields. However, there is a risk tradeoff due to economic fluctuations, tenant turnover, and potential challenges securing long-term leases in certain submarkets.
Austin: A Stable Market of Interest
At the time of this writing, Austin boasts the lowest cap rate among the analyzed cities at 7.5%. While this might seem less appealing to yield-focused investors, Austin’s consistent demand for office spaces and its reputation as a tech and innovation hub suggests stability and long-term growth potential.
Dallas-Fort Worth and Houston: The Balanced Middle Ground
Projected 2025 cap rates in Dallas-Fort Worth and Houston fall in the mid-range at 8.7% and 10.0%, respectively. These markets offer a balanced risk-return profile for investors, blending moderate yields with manageable exposure to market volatility.
What This Means for Investors
The projected decline in cap rates highlights the need for strategic planning. Lower cap rates typically signal higher property valuations, which could impact acquisition strategies and returns.
These lower cap rates also underscore the importance of leveraging insights and timing to optimize portfolio performance.
How to Stay Ahead in 2025
1. Evaluate Market-Specific Strategies
For high cap rate markets like Killeen and San Antonio, focus on identifying undervalued assets and implementing value-add strategies, such as property renovations and upgrading amenities to attract premium tenants.
In stable markets like Austin, prioritize stability-driven investments, such as Class A office spaces in prime locations.
2. Integrate Tax Optimization
As tax season approaches, it’s critical to align your CRE strategy with tax-efficient practices. Proactive tax preparation can significantly impact your bottom line, like leveraging depreciation to maximize deductions.
Additionally, investors can explore cost segregation studies to accelerate depreciation on specific property components and take advantage of tax credits or incentives for energy-efficient upgrades. Ensuring proper record-keeping and consulting with a tax professional can further optimize tax strategies and prepare your portfolio for shifts in cap rates.
3. Adapt to Market Trends
Staying informed about cap rate trends can help you pivot investment strategies and remain competitive. This is particularly important as we anticipate a decline in cap rates through 2025.
Ready to Strategize?
Whether you're navigating a high-cap rate market or considering stable investments in Austin, now is the time to position your portfolio for success in 2025.
At Ownwell, we specialize in helping Texas CRE investors reduce property tax burdens, identify potential savings, and maximize their investment returns. We leverage our expertise in property tax analysis, appeals, and proactive strategies to help you stay competitive and improve cash flow—even as office cap rates shift.
Schedule a call with our team to explore tailored strategies for optimizing returns, minimizing tax liabilities, and preparing your CRE investments for tax season and beyond.
