Quarterly Update: Retail Market

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Houston’s retail market remains a steady performer among the city’s commercial real estate sectors, supported by continued population and job growth. The vacancy rate edged up to 5.4 percent in Q1/25 but remains low by historical standards. Retailers continue to seek space, though leasing momentum has slowed, with total leasing activity falling to 1.7 million square feet in Q1/25 compared to over 2.1 million in Q4/24. Rents remain stable and are slightly rising, with no major signs of overbuilding as construction activity continues to decline.

Vacancy rates rose early in the pandemic but began trending down in ’21 as the economy recovered. After peaking at 6.2 percent in Q3/20, rates declined steadily through most of ’23, inched up during the first half of ’24, and hovered at 5.3 percent in the second half of ’24. As of Q1/25, the vacancy rate ticked up slightly to 5.4 percent. Robust population growth and a sustained return to in-person shopping continue to support demand for retail space.
 

The market absorbed just 159,000 square feet of retail space in Q1/25, marking the lowest quarterly total in over five years. This represents a sharp decline from the 818,000 square feet absorbed in Q1/24 and continues a downward trend that began in mid-’23. The slowdown suggests more cautious expansion by retailers, even as vacancy remains low and leasing activity holds relatively steady.

At the end of Q1/25, the total space being marketed—including vacant, occupied yet available, available for sublease, or expected to become available—amounted to 25.4 million square feet. This represents an increase from 24.0 million square feet in Q1/24.

Retail construction has slowed due to higher interest rates and tighter lending standards. As of Q1/25, Houston had 3.6 million square feet of retail space underway, down from 4.6 million square feet in Q1/24 and 3.7 million in Q4/24.

Rents continue to rise. In Q1/25, the average retail rent reached $20.86 per square foot per year, up from $20.70 in Q1/24 and $19.63 in Q1/23. These rates are quoted as triple net (NNN), meaning tenants are responsible for covering all expenses associated with their share of building occupancy, including taxes, maintenance, utilities, security, and more.

Prepared by Greater Houston Partnership Research

Leta Wauson
Research Director
lwauson@houston.org