Houston Retail records 14th straight year of positive absorption.

EXECUTIVE SUMMARY

Q2 2023 in Review
By the end of Q2 2023, the overall vacancy rate in the Houston retail market rose 10 basis points quarter-over-quarter, from 5.0% to 5.1%. Net absorption continued its streak—marking 14 straight years of positive absorption—at 585,550 sq. ft. in Q2 2023. Year-to-date, net absorption is at 1.7 million sq. ft. Year-to-date, deliveries total 1.9 million sq. ft.—12% were 0% leased upon delivery, which slightly increased the vacancy rate to 5.1%. Deliveries—849,337 sq. ft. in Q2 2023—decreased 26% from 1.1. million sq. ft. quarter-over-quarter and increased 29% from 656,254 sq. ft. year-over-year. The retail construction pipeline total for the quarter registered slightly above the prior three-year average (3.4 million sq. ft.) at 3.8 million sq. ft. in Q2 2023. Rent growth continued to trend upward, averaging 3% annual growth over the prior three years, currently standing at $20.02 per sq. ft.

Houston Economic Update
Houston’s unemployment rate increased to 4.4% in May 2023, ticking up from 4.0% in April 2023. The metro’s jobless rate beat the state’s and the nation’s rates at 4.1% and 3.5%, respectively. Year-to-date, Houston has gained 33,496 jobs in the first five months of 2023, reflecting 2.5% annual growth. Service-providing industries experienced the most growth in May. Specifically, trade, transportation, and utilities (5,300 jobs, 0.8%), leisure and hospitality (4,600 jobs, 1.3%), and education and health services (3,000 jobs, 0.7%).

MARKET OVERVIEW

14 Straight Years of Positive Absorption
Net absorption—move-ins minus move-outs—for the quarter was at 585,550 sq. ft. as of the end of Q2 2023. This represented a decrease of 48% quarter-over-quarter, from 1.1 million sq. ft. in Q1 2023. Year-to–date, net absorption is at 1.7 million sq. ft. This marks 57 quarters—equal to over 14 straight years— that the Houston retail market recorded overall positive absorption.

Deliveries Increase 29% Year- Over-Year
In Q2 2023, deliveries totaled 849,337 sq. ft. in the Houston retail market. Quarter-over-quarter, deliveries decreased 26% from 1.1 million sq. ft. in Q1 2023. Year-over-year, deliveries increased 29% from 656,254 sq. ft. in Q2 2022. Since last year, some of the largest deliveries that hit the market have been supermarkets and department stores. For example, a 116,530-sq.- ft. grocery store (H-E-B) in Magnolia was delivered in November 2022. In addition, there is 3.8 million sq. ft. in the construction pipeline as of Q2 2023. Over the prior three years, construction averaged 3.4 million sq. ft. annually.

Rent Growth Trends Upward
By the end of Q2 2023, the Houston retail overall triple-net average rates currently stand at $20.02 per sq. ft., up slightly from the previous quarter and previous year at $19.67 per sq. ft., and $19.39 per sq. ft., respectively. Overall, rents continue to trend upward—averaging 3% annual growth for the prior three years. On the quarter, the Inner Loop submarket had the highest average rate at $31.76 per sq. ft. On the other hand, the Southeast submarket had the lowest average rate at $16.87 per sq. ft.

Alex Babcock
Senior Research Analyst
[email protected]
tel 713 275 9618