Boom-and-Bust Oil Puts Houston at Center of Real Estate Crisis

President Donald Trump is championing a revival of American fossil fuels with calls to “drill baby drill.” But in the US energy capital, a pullback in the industry has already left its mark.

Houston office buildings once packed with oil executives, engineers and energy traders are now marked by darkened floors and fewer desks. A wave of consolidation — with more than $450 billion of oil and natural gas  since the start of 2023 — has led companies to cut jobs and abandon corporate campuses.

The Houston market’s  reached 27.9% in the first quarter, trailing only San Francisco as the worst among major US metropolitan areas, according to brokerage Colliers. In a region known for sprawl, offices built decades ago have now been rendered obsolete as companies instead take advantage of cheap land to develop newer properties.

The real estate that was once a symbol of Houston’s oil-fueled prosperity has become a glaring reminder of an  for a leaner future, in contrast to Trump’s calls for new . Drillers are looking for only  growth amid the prospect for peaking shale output. That means they not only need fewer rigs, but less office space — leaving the fourth-largest US city struggling with empty buildings for which it has few options.

“We’ve seen this happen over and over again, and I don’t think it’s going to stop,” said Louis Rosenthal, head of energy real estate at Jones Lang LaSalle Inc. Energy has “become a much more efficient industry and occupier of office space.”

Recent consolidation in the industry means even more space is coming on to the market. After  Marathon Oil Corp. in November for about $16 billion, ConocoPhillips is looking to sell the company’s , a 15-story tower built three years ago.

Southwestern Energy Co. built two new  along Interstate 45, sold them and leased one back. After the company agreed to be acquired by natural gas rival Chesapeake Energy Corp. in October for $7.9 billion, the giant “SWN” ticker symbol letters that graced the top of an archway connecting the two buildings are gone. Expand Energy Corp., the name of the combined company, occupies one of the towers, leaving the other in need of tenants.

But the biggest pain lies in aging properties built in the 1980s oil boom. They account for more than half of Houston office space but are the hardest to fill. Eric Siegrist, executive managing director at Cushman & Wakefield in Houston, estimates that about 30% of the office buildings from that era are in financial distress.

Unlike densely populated urban centers such as  and , where downtowns have been  by a slow pandemic recovery, Houston’s sprawling landscape means its empty buildings are less apparent — even as they still proliferate.

“There are some very stressed out buildings,” Siegrist said. “It’s happening all over town, but you don’t know it’s happening because it’s just small little pockets here and there.”

Houston has diversified its economy since the early 1980s, when at least half of its gross domestic product came from energy, but the industry still occupies about a third of the city’s large office space, according to CoStar. Of the 20 biggest US metro areas, Houston ranks fifth for least diverse employment base, according to Moody’s Analytics.

That close relationship means the oil industry’s booms and busts can make it difficult for landlords to keep their towers full.

“They’re like yo-yos,” said David O’Reilly, chief executive officer of real estate developer Howard Hughes Holdings Inc. The firm took almost five years to fill an office tower sold by Occidental Petroleum Corp. after it acquired Anadarko Petroleum Corp. “It’s more volatility here in Houston due to the high concentration of oil and gas,” he said.

As the largest American city without zoning restrictions, Houston’s development has pushed further and further outside of the city center, which is now encompassed by three different outer-ring freeways. That offers developers a low-cost option to build a brand new building when oil prices are high, rather than paying to tear down or renovate older ones.

“When times are good and these companies are expanding, every developer is running with their shovel to find a piece of dirt and build something great,” said O’Reilly, whose company is the developer of The Woodlands planned community in Houston’s suburbs. “Usually there’s more than one tower coming out at the exact same time and it just adds supply. And sometime between when the shovel goes in the ground and when it’s fully leased, the music stops, and it becomes ugly.”

The shale industry today is financially stronger than it’s ever been, but that’s because investors demanded austerity in the form of consolidation and greater efficiency. That consolidation over the past five years has affected roughly 15 buildings around the Houston area, meaning they saw or will potentially see occupied space go empty, according to Cushman & Wakefield.

In September, Oklahoma City-based Devon Energy Corp. will close its outpost on the west side of Houston that handled its Bakken shale asset after acquiring the business in a $5 billion deal with Grayson Mill Energy last year.

Devon’s offices, located in the upscale CityCentre mixed-used development, may fill soon — highlighting the divergence between new space and older buildings. Several companies are interested into moving into the retail, office and hotel development and have been sitting on the sidelines waiting for space to open up, Siegrist said.

About a quarter of Houston’s roughly 185 million square feet of total office space is top tier, Siegrist estimates, meaning new buildings won’t stay empty for long. But for the older buildings, the road ahead is treacherous, he said.

The TC Energy Center, a prominent part of the city’s skyline, was built in the early 1980s oil boom. Its design captures the excess and optimism of the era: The 56-story office tower is coated in Swedish red granite and connects to a 12-story bank hall with a vaulted ceiling.

The complex has struggled to compete with newly built offices. Its value, combined with a nearby parking garage in a loan bundled into a commercial mortgage backed security, plunged from $403 million to $284 million between 2019 and 2024, according to loan records. In that same span, occupancy dipped to 65% and the loan briefly entered special servicing, often a sign of distress.

Local real estate firm M-M Properties is converting the banking hall to “amenity space and creative office,” according to its . A spokesperson for the company didn’t return requests for comment.

Total do-overs are expensive, though, and many of the aging offices have become ghosts in the heart of the city.

Exxon Mobil Corp. consolidated almost all of its offices in the Dallas and Houston areas to a new headquarters campus about 30 minutes north of downtown Houston. One of its vacated buildings, called the “White House,” was demolished in June. A fundraiser at a local shrimp and catfish festival auctioned off the right for someone to push the button on its demise.

But another former Exxon building is still standing on the southern edge of downtown. The 45-story former headquarters of Humble Oil, which preceded Exxon, also housed the prestigious Petroleum Club of Houston before the oil giant moved out a decade ago. Exxon sold the building, but brokers say it’s probably too expensive to refurbish.

“I don’t think that thing is ever coming back — it may still be here when you and I have departed the Earth, just standing there,” Siegrist said. “Many of the buildings that have been perfectly good buildings are going to fade into the dark, and somebody’s going to lose money on that.”