Colliers – Houston Retail Market Report | Q3 2023

“Although vacancy and absorption has remained relatively stable over the past few quarters, leasing activity during Q3 jumped more than 15% from the previous quarter as retailers continue to secure their positions in the Houston market.

As the global economy faces economic challenges, Houston’s resiliency, especially in the retail sector, has allowed retailers to grow in a market bolstered by strong population growth, competitive cost of living and wide-ranging diversity. The recent leasing activity provides a positive outlook as we wrap up 2023 and head into 2024.”, said Daniel Rice, President.

2023 Q3 Retail Houston Report Colliers

Key Takeaways

  • Vacancy plateaus at 6.5%
  • Absorption negative but positive year-to-date
  • Leasing activity increases QoQ and YoY
  • Rental rates continue to rise

Houston Highlights

Houston’s vacancy rate stabilized at 6.5% during third quarter, representing a decrease of 10 basis points from a year ago. New supply outpaced demand as 138,219 square feet of additional retail space was delivered while net absorption totaled a negative 38,914 square feet, representing the first negative absorption in 2.5 years. Year-to-date absorption is 732,548 square feet. Leasing activity of 1.2 million square feet jumped 15.5% from the prior quarter and 4.7% year-over-year. The construction pipeline remains limited with 1.2 million square feet currently underway. Rental rates reported marginal increases from both the previous quarter and year-over-year.

Market Indicators

Historic Comparison

*Source: CoStar

Market Fundamentals

Overall vacancy has maintained a 6.5% rate for the last three quarters and below 8.0% during the last two years. Strong demand since the pandemic — up until the current third quarter — with limited new supply has resulted in a robust retail market. Net absorption slowed during the last two quarters, recording the first negative absorption since Q1 2021 during third quarter.

Recent Transactions

*Colliers Transaction

Executive Summary

Commentary by Hannah Tosch, Vice President

Tenants lack options with declining inventory while increased costs delay construction

After much uncertainty on the state of the overall global economy throughout the year, it is with a cautious “glass-half-full” outlook that we enter the final quarter of 2023. Well, at least this is true for those of us fortunate enough to be in Houston.

Our resilient economy is the overarching factor that continues to bring in skilled professionals from all over the country. Houston has experienced a surge in net move-ins, which has played a big role in our city’s economic stability as it relates to the retail sector. According to PODS, Houston has jumped seven spots to rank No. 5 in the 2023 U.S. annual moving trends report. Houston has also emerged as a Top 2 destination for college graduates, thanks to a combination of our low cost of living and vibrant economy with high-paying jobs.

As a result of Houston’s resiliency, an influx of new-to-market restaurants, social entertainment and retailers are targeting Houston as their next market or have committed to leases in the area. From Ohio to London, our retail team at Colliers has seen firsthand the range of best-in-class operators ready to enter the Houston market. Similarly, to our feedback last quarter, active retailers and restaurants continue to outpace the amount of quality inventory.

The saying “retail follows rooftops” holds true as we are seeing a direct correlation between the growth of Houston’s population and the desire of both local and national brands to expand within this market. A recent Zagat survey revealed Houston as the No. 1 city in the U.S. for dining out the most on a weekly average, demonstrating our consumer base’s disposable income and cultural curiosity.

Relative to other Texas markets such as Dallas and Austin, Houston’s retail leasing costs remain competitive across the board despite new construction pricing and inflation. Healthy occupancy levels combined with a thriving consumer base with disposable income ranks Houston at the top of many retailers’ expansion list. With plenty of room to scale and grow,grow, Houston continues to check many boxes for expansion.

Construction Activity Delivery Timeline

Class A 100,000 SF or Greater