Supply and Demand Largely in Balance, Showing Overall Strong Market Fundamentals with Record High Rates.

EXECUTIVE SUMMARY

Q2 2024 In Review
The Houston retail market demonstrates sustained strength, with vacancy and availability rates remaining below the 5-year average. Demand is robust, reflected in positive net absorption figures and notable move-ins and lease signings. While the construction pipeline has decreased slightly, it remains substantial with 3.7 million sq. ft. underway, including major projects like The Manvel Town Center. Year-to-date net absorption stands at 1.2 million square feet, reflecting consistent positive trends over the past decade. The market’s stability and ongoing development activity suggest continued rental rate growth ahead, which continues to break all-time highs.

Houston Economic Update
Houston’s labor market growth was strong and broad based in April. In the energy sector, production jobs declined year over year while growth has been concentrated in mining-related services. Exports of energy goods through the Port of Houston ticked down in March. Inflation slowed in April, and real wages were up year over year. Houston added jobs at a strong pace in April. Annualized total nonfarm job growth from March to April was 4.3% (or 12,110 jobs). Annualized employment growth was 2.0% (17,163) from January through April. The strongest gains were in education and health services (4.2%), leisure and hospitality (3.7%) and financial activities (3.6%). Education and health services added 4,700 jobs while leisure and hospitality added 3,273. Trade, transportation and utilities was the only sector to shed jobs during that same period, declining 0.7% (-1,217 jobs).

MARKET OVERVIEW

Vacancy and Availability Rates Remain Below The 5-Year Historical Average
The overall vacancy in the Houston retail market remained flat from the previous quarter at 5.2%, while the availability rate edged down slightly from 6% to 5.9%. Supply and demand are in lock step with one another, with most of the net absorption going into new construction deliveries.

Demand Remains Strong, Up for the Quarter
Net absorption-move-ins minus move-outs—is at 601,314 sq. ft., up 6% from last quarter. Year-to-date, net absorption is at 1.2 million sq. ft. Net absorption has been consistently positive, not once dipping into negative territory over the past 10 years. Notable Q2 move-ins include Slick City taking 44,987 sq. ft. at Katy Mills Mall, Gulf Coast Distillers taking 40,894 sq. ft. in the historic Sawyers Yards area and Club Studio taking 40,000 sq. ft. at Kings Crossing. Recently signed leases include Joe V’s Smart Shop signing a lease for 64,000 sq. ft. at West Road Plaza, Elite Pickleball Club signing a lease for 40,000 sq. ft. at Bay Pointe Shopping Center, and the Milan Institute signing a lease for 31,622 sq. ft. at Cypress Station Square.

Construction Pipeline Down Moderately, Still 3.7 Million sq. ft. is Underway
Retail construction is at 3.7 million sq. ft., down 16% from the 4.4 million sq. ft. from last quarter. Notable construction projects include The Manvel Town Center, a 748,800 sq. ft. retail center in South Houston/Pearland area. Also, Northwest Hyundai has a 324,093 sq. ft. new car dealership underway in Jersey Village area of Houston. On the deliveries front, Cadillac Houston opened a new 159,558 sq. ft. dealership in early 2024 and a new 154,648 sq. ft. Costco was recently completed in Richmond.

Investment Sales Trends
CoStar Capital Market Analytics reports the cumulative 12-month sales volume at $499 million in the Houston retail market. With 539 deals completed, the average transaction price currently stands at $224 per sq. ft. with an average cap rate at 7.1%. Notable recent sale transactions include Silvestri Investments sold the Spring Valley Mall to Atlas Operating. The shopping center is 300,668 sq. ft. and was 66% leased at the time of the sale. Also, JMK5 Holdings sold the Mainland Crossing shopping center to Investor Loan Source. The 120,669 sq. ft. shopping center is anchored by Vettrus Supply and was 100% leased at the time of the sale.

Record-High Asking Rents
Low availability rates and rising retail sales drove the average asking rent in the Houston retail market to a record-high—$20.80 per sq. ft. in Q2 2024. Year-over-year, the metro’s average asking rent increased 2.5% from $20.02 per sq. ft. in Q2 2023. On a submarket level, the Inner Loop submarket continues to maintain the highest average rate at $30.58 per sq. ft. On the other hand, the Southeast submarket had the lowest average rate at $17.30 per sq. ft. Asking rents are projected to remain on an upward trajectory—increasing about 3% annually over the next few years.

Steve Triolet
Senior Vice President, Research and Market Forecasting
tel 214 223 4008
[email protected]