Houston Retail Market Report
Market Overview
The Houston retail market remains at an equilibrium moving into the end of the year. Net deliveries have exceeded demand over five out of the past six quarters. Moveouts over the first three quarters of 2024 were up almost 20% year-over-year. The overall availability rate has been higher as a result of these dynamics. At 5.8%, retail space available for lease is below the all-time average and lower among small properties or highly sought after locations. Construction starts are at a record low due to rising construction and borrowing costs, and supply-side pressure is likely to be substantially lower next year.
New supply is expected to total less than 2 million SF in 2025, a record low. While demand and supply-side variables should keep the basic landscape tight, a predicted downturn in consumption may continue to limit rent rise in the short term. Even so, with new supply expected to reduce considerably next year, rent growth could reaccelerate in 2026.
Houston By the Numbers
- Vacancy Rate: 5.1%
- Rent Growth: 1.5%
- Absorption in SF: 2.8M
- Deliveries in SF: 4.2M
- Sales Volume: $699M | Last 12 Months | Source: CoStar Group
Market Performance
The availability rate in Houston is at a two-year high of 5.8%. 26 million SF of space is available for lease, which is 1 million SF more than the previous year and comparable to the annual average from 2015 to 2019. Houston’s average triple net asking rent is currently $24.00/SF, a 1.5% increase over the previous year. Despite the market slump, many locals regard Houston as a landlord’s market. Many landlords continue to push 3% annual rent increases for high-end premises in desirable locations. Rent growth is slowing after reaching a historic high of 4.9% in early 2023, as higher operational expenses limit landlords’ ability to raise rents, reducing NOI growth. 3.3 million SF of retail space is currently underway, accounting for 0.7% of the existing inventory.
Even though about 50% of it is available for lease, local participants are betting that most projects will be leased before being completed due to the new quality space being added to the market. Investors continue to pursue grocery-anchored neighborhood centers, which frequently have cap rates in the low 6% area. Meanwhile, unanchored retail strip centers and major power centers may see pricing beyond 7%, and at times fall in the 8% to 9% range based on the submarket and age of the property. Moving forward, the $1.7 billion in the retail loans maturing in 2025 is an important issue for the market, as some property owners may be unable to refinance in today’s high-interest rate climate. This may rush some to bring assets to market.
