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Houston's retail market is making waves nationally in 2024, ranking third for the addition of new retail space. With a pre-leasing rate surpassing 70%, Houston is on track to outpace new supply with net absorption. This positions the metro to be the largest in the U.S. to see a reduction in retail space availability this year, driven primarily by the performance of its eastern half. Furthermore, the availability rate for smaller freestanding properties, specifically those under 5,000 square feet, stands at just 3.5% in 1Q24.

The Houston Retail market continues to be the healthiest of Houstona€™s commercial real estate markets. The overall vacancy rate has remained steady quarter to quarter, ranging from 4.8% to 5.1%. Additionally, as of 4Q23, Houston recorded a total absorption of 2.8 million SF over the past 12 months. This absorption was predominantly concentrated in the general retail sector (1.8 million SF) and neighborhood center segment (120,000 SF). Because of this, Houston secured the second position nationally in terms of new demand during this period. As the year progresses, we should see more space being absorbed and demand continue to heighten.

The resiliency of the Houston retail market is being tested while absorbing the three-year high of new supply and dealing with an uncertain economy. A total of 4.5 million SF of new supply was delivered to the Houston market in 2021 and 2022. In 2023 the new construction pipeline expects to deliver approximately 4.9 million SF. Furthermore, the vacancy rate of 4.9% remained unchanged in 3Q23. The lack of construction in 2022 is a leading cause of the current vacancy rate. However, with most of the current new construction to be completed by the end of 2023, we forecast the vacancy rate to level off over the next few quarters.