Houston Retail Market Report

Notable construction results in a push away from metro recovery. Houston boasts the country’s second-largest 2023 retail construction pipeline, even as projected deliveries for this year trail the past decade’s annual average by about 30 percent. A notable portion of this development arrives in the Northwest side of the market, highlighted by a 150,000-square-foot multi-tenant project in Cypress. Triple-digit-basis-point declines in vacancy across the metro’s western submarkets last year warrant the new stock in the long term, as a growing number of residents call the area home. In the immediate future, however, economic headwinds will curtail performance improvements. Softer retail sales and median household income growth against persistently elevated inflation contribute to reduced tenant sentiment, curbing net absorption to about half of the 2022 figure. These short-term challenges will extend lease-up timelines for the new supply coming in 2023, lifting vacancy for the first time in three years. At the same time, new, high-quality space entering the market enhances the average asking rent.