Houston, TX Retail Market Report
Market Overview
The retail market in Houston shows a strong demand outlook, attracting many investors to plant capital. Thriving sectors have included discount retailers, pharmacies, home improvement, and beauty stores. In the past 12 months, Houston saw 2.9 million square feet of retail space delivered, the second highest of major metros in the country. Many residents are attracted to Houston due to its relatively low cost of living and high disposable income compared to other metros. Although there has been some pullback since mid 2022, Houston’s retail sector remains optimistic due to its prime location, strong population, household growth, and affordability.
Highlights
- Houston ranked 2nd in the country for most retail space absorbed in the past 12 months
- Over the past 12 months, 87% of new leases were for spaces under 5,000 square feet
- Trailing 12-month rent growth stands at 4.5%
- Houston completed $1.2 billion in retail sales volume in the past 12 months
Most of the new retail space in Houston is a part of mixed-use development properties.
Rents | Vacancy | Construction
Positive trends in leasing and absorption drove annual rent growth to 4.5 percent. For strip centers, rent grew 4.1 percent, neighborhood center rents by 4.9 percent, and malls by 6.0 percent. Submarkets like Uptown/Galleria are seeing rents about 90 percent higher than the metro-wide average, while in the Inner Loop River Oaks Submarket, rents are 60 percent higher than the metro-wide average. The average retail rents in the Inner Loop River Oaks submarket are $35 per square foot. Across Houston, vacancy is at 5.0 percent with 4.2 million square feet of retail space anticipated to be delivered in 2023. Additionally, 2023 rent growth is expected to decelerate, increasing by 2.3 percent, which is nearly 200 basis points lower than 2022 growth. Thriving Houston submarkets include fast-growing Montgomery County, the Far Katy North, and Far South, which have the most retail space underway in the MSA. A common trend surrounding new retail development is mixed-use, primarily in affluent suburban areas with strong demographic growth.
Sales
In the past 12 months, Houston completed $1.2 billion in disclosed retail sales. Including undisclosed listings, Houston reached an estimated $5.1 billion in sales volume in 2022, according to Costar Group, which is the market’s second-largest total on record. However, sales have slowed entering 2023, which is a direct reflection of rising interest rates and recessionary fears. Despite slowing sales, out-of-state buyers are heavily active, accounting for 80 percent of sales volume. Houston’s average pricing is in line with the national benchmark, with Houston averaging $240 per square foot. Since mid2022, average cap rates have been above five percent to keep in line with rising rates. Overall, Houston’s strong operating performance is reflected by the $12 billion of outstanding CMBS loans secured by retail properties, of which, less than one percent were delinquent as of the end of 2022. Therefore, the future for Houston’s retail sector remains optimistic, primarily thanks to its rising demographics and growing population.
Houston by the Numbers
- Square Feet Delivered (12 Months): 3.4M
- Properties Under Construction: 207
- Sales Volume including Disclosed & Undisclosed (12 Month) : $5.1 billion
- Average Asking Rent % Change YOY: 4.5
- Average Vacancy % Rate % Change YOY: -.4
