Houston Retail Market Remains Balanced with Healthy Leasing Activity and Stable Vacancy Rates
EXECUTIVE SUMMARY
The Houston retail market remained balanced in Q3 2025, with an overall average vacancy rate remaining at 5.6%. This stability is attributed to the balance between supply and demand, as net absorption for the quarter came in at 812,168 square feet, and the addition of 700,927 square feet of deliveries added to inventory. Leasing activity decreased 9.3% quarterly and was down 22.1% year-over-year. The construction pipeline decreased 11.2%, with 2.5 million square feet under construction in Q3. Meanwhile, the average asking rental rate marginally increased 0.3% to $20.49 per square foot from the previous quarter.
SUPPLY & DEMAND
KEY MARKET INDICATORS
MARKET OVERVIEW
HOUSTON ECONOMIC UPDATE
Houston’s unemployment rate increased from 4.3% in June to 4.5% in July and decreased from 5.0% one year ago. The labor market recorded employment growth of 2.0% year-over-year, adding 66,700 jobs, an increase compared to the annual 22,400 jobs gained in July a year ago.
Job growth was uneven across sectors. Other Services employment was a standout, growing at an annualized rate of 5.2% year-over-year (6,800 jobs) from July 2024 to July 2025. Additional sectors showing resilience include Education and Health Services, which expanded at a 4.1% annualized rate (18,500 jobs). The Leisure and Hospitality sector increased at an annualized rate of 3.7% (13,300 jobs). Oil and Gas employment, which grew 3.2% year over year (40,900 jobs), was bolstered by increased Texas oil production and rising retail fuel prices. The Construction sector grew at 3.2% (7,300 jobs). Sectors that experienced job losses include Information at -2.6% (800 jobs) and Professional and Business Services at -0.5% (2,600 jobs).
VACANCY RATE REMAINS LOW AT 5.6%
The total average vacancy rate remained flat over the quarter at 5.6%, but this was up 30 basis points annually. Over recent quarters, supply and demand have been in lockstep, with most of the net absorption going into new construction deliveries. The total availability rate remained at 6.1% on a quarterly basis but increased by 40 basis points from Q3 2024.
DEMAND INCREASES SIGNIFICANTLY
Net absorption, which is the difference between move-ins and move-outs, significantly increased from the previous quarter, recording 812,168 sq. ft. compared to 246,363 in Q2 2024. This pushes the year-to-date total net absorption to 1.3 million sq. ft. Notable Q3 2025 move-ins include The Picklr moving into 66,517 sq. ft. in College Park Shopping Center in The Woodlands, EoS Fitness moving into 51,130 sq. ft. in Square at Elyson in Katy, Shoppers World moving into 44,000 sq. ft. in Steeplechase Center.
LEASING ACTIVITY DECREASED OVER THE QUARTER
Leasing activity for Q3 2025 totaled 1.8 million sq. ft., representing a 9.3% quarter-over-quarter decrease from the 2.0 million sq. ft. recorded in Q2 2025. Recently signed leases include Burlington’s 33,890 sq. ft. lease at Price Plaza on Fry Road in Katy, Sky Zone’s 26,600 sq. ft. lease at Pearland Shopping Center, and Barnes & Noble’s new 22,000 sq. ft. lease at Green Tree Shopping Center in Katy.
DELIVERIES AND CONSTRUCTION PIPELINE DECREASE
Construction deliveries were down 23.9% for the quarter and 41.2% for the year, adding 700,927 sq. ft. to Houston’s retail inventory. The construction pipeline stands at 2.5 million sq. ft., down 11.2% quarter-over-quarter and 22.5% year-over-year. The majority of the construction consists of neighborhood retail centers, 30,000 sq. ft. or less, near recently developed residential subdivisions.
INVESTMENT SALES TRENDS
CoStar Capital Market Analytics reports that the cumulative 12-month sales volume at the end of the third quarter in the Houston retail market was $337 million. With 430 deals completed, the average transaction price currently stands at $216 per sq. ft., with an average capitalization rate of 7.6%. Notable sale transactions in Q3 2025 include the 407,611 sq. ft. LaCenterra at Cinco Ranch, a mixed-use development in Katy, purchased by Brixmor Property Group Inc. for $223 million. Also, 111,865 sq. ft. First Colony Marketplace in Sugar Land, purchased by Dhanani Private Equity Group for an undisclosed price.
RENTAL RATES INCREASE MARGINALLY OVER THE QUARTER, BUT DECREASE OVER THE YEAR
Low availability rates and rising retail sales have kept the average asking rent in the Houston retail market near record highs. The average NNN rental rate marginally rose 0.3% over the quarter from $20.42 per sq. ft. to $20.49 per sq. ft. in Q3 2025. Year-over-year, the metro’s average asking rent dropped 1.0% from $20.70 per sq. ft. On a submarket level, the Inner Loop submarket continues to maintain the highest average rate at $28.18 per sq. ft. In contrast, the Southeast submarket had the lowest average rate at $17.00 per sq. ft. Asking rents are projected to remain relatively flat for the near term.
For More Information, Contact:
Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]
