Inflation has reshaped the commercial real estate landscape in Texas, softening demand for most property types and driving down land values in major metro areas like Austin, Dallas-Fort Worth, Houston, and San Antonio. In early 2022, when interest rates hit historic lows, land zoned for single-family, multi-family, self-storage, office, and retail development saw record-high prices fueled by eager buyers and cheap financing. By 2025, the picture has changed dramatically. Higher interest rates, surging construction costs, and rising insurance premiums have curbed buyer appetite, pushing land values down by 20 to 30 percent from their 2022 peaks. Landowners now face tough choices: get creative by partnering with developers, lower prices to attract investment buyers willing to hold until the market rebounds, or wait out the cycle themselves.

The Inflationary Squeeze on Demand

The 2022 market was a high point for Texas land values. Low borrowing costs—mortgage rates dipped below 3 percent—enabled developers to bid aggressively on parcels for single-family subdivisions, multi-family complexes, self-storage facilities, office spaces, and retail centers. Fast forward to 2025, and inflation has shifted the dynamics. Interest rates for 30-year fixed mortgages are projected at 5.6 to 6 percent by year-end, making financing costlier and squeezing returns. Construction costs have climbed significantly, with nonresidential prices rising at a 6 percent annualized rate in the first half of 2025, driven by 15 to 25 percent increases in materials like lumber, steel, and concrete since 2022. Potential tariffs could add another 1.5 to 2.5 percent to costs. Insurance premiums have also spiked, with commercial property rates up 5.3 percent in Q1 2025, particularly for multi-family and retail projects in high-risk areas where costs can inflate budgets by 10 percent or more.

These pressures have softened demand across nearly all real estate classes. Single-family land, once a hot commodity, faces reduced buyer interest, with Austin seeing continued price softening due to higher financing costs. Multi-family demand remains relatively stable but not immune, with national rental vacancy rates at 7.0 percent in Q2 2025 and urban markets holding below 5 percent, yet elevated costs deter new projects. Self-storage, despite earlier strength with Q1 2025 sales at $855 million, is no longer a robust development market as financing and construction hurdles limit new starts. Office land has been soft since 2020, with older spaces struggling, though stabilization may occur if rates ease. Retail land, especially for mixed-use, sees pockets of demand in high-traffic corridors but faces the same inflationary constraints. As a result, land values across these asset types have dropped, with rural land prices (often near metros) up only 2.68 percent year-over-year in Q1 2025 but projected to decline 1 percent by year-end.

The Impact on Land Values

The math is clear: higher costs mean lower land prices. Buyers, facing pricier loans and inflated development expenses, are offering 20 to 30 percent less than 2022 peaks. A parcel valued at $5 million in 2022 might now fetch $3.5 million, reflecting higher cap rates and construction costs. Single-family land in oversupplied areas like parts of DFW faces similar declines. Industrial land, while still drawing interest in logistics hubs like Houston, struggles to justify 2022 prices as development slows. Office land remains a tough sell, and even multi-family parcels, buoyed by rental demand, require price adjustments to attract buyers. Fewer buyers are in the market, as lenders and equity markets tighten criteria, further pressuring values.

Options for Landowners

Landowners holding parcels zoned for these asset types face a stark reality: the 2022 market is gone. Those expecting to match peak prices often see their land sit unsold, sometimes for months or years. One path forward is to get creative by partnering with developers. Joint ventures or phased development deals can spread financial risks, leveraging developers’ expertise to navigate high costs and secure financing. For example, a landowner with multi-family-zoned land in Houston might partner with a developer to phase a project, aligning costs with market recovery timelines.

Alternatively, landowners can lower prices to attract investment buyers—those with the capital to hold land until the market cycle rebounds. These buyers, often institutional or high-net-worth investors, are selective but active in Texas metros with strong growth, like DFW and San Antonio, where population gains still drive long-term potential. Pricing competitively—reflecting today’s higher cap rates and costs—can unlock these deals. For instance, land in logistics-heavy areas might still move if priced 25 percent below 2022 levels.

The final option is to wait out the cycle. Landowners with the financial flexibility to hold properties may choose to sit tight, betting on future rate cuts or economic recovery to lift values. However, with forecasts suggesting persistent inflation and rates above 5 percent into 2026, this approach carries risks, especially for office and retail land in oversupplied markets.

Looking Ahead

Texas’ major metros remain growth engines, but inflation’s grip has softened demand for single-family, multi-family, self-storage, office, and retail land, driving values down from their 2022 highs. Landowners must decide whether to partner with developers, lower prices for investment buyers, or hold firm and wait. Each path depends on market conditions, financial goals, and patience. The days of cheap money are over, but Texas’ long-term potential endures for those who navigate this cycle wisely.