Latest Quarterly Snapshot

Houston's retail construction pipeline remains robust, with approximately 3.4 million SF under development, primarily in the Far Northwest (Cypress, Bridgeland, Tomball and Magnolia), Far North (Conroe, Huntsville, Willis, and New Waverly), and Katy areas, driving an increase in upcoming supply. However, in 2Q25, a lack of absorption led to a 10-basis point rise in the overall vacancy rate, from 5.4% to 5.5%. This slight increase in vacancy is due to new spaces being filled by new construction rather than the absorption of existing vacancies. While supply and demand had been in close balance in recent quarters, with most of the net absorption going into newly delivered properties, the market is now adjusting as retailers take a more cautious approach amid economic uncertainties. As tenant absorption lags behind the influx of new space, vacancy rates are rising, suggesting potential shifts in leasing strategies and tenant demand moving forward.

During the 2Q25, Houston's industrial market saw a substantial increase in new supply, with approximately 3.8 million SF of space delivered. This new inventory surpassed the 2.1 million SF of net absorption during the same period, contributing to a slight rise in the overall vacancy rate, which now stands at 7.1%. The development pipeline remains strong, with 19.1 million SF currently under construction, reflecting a 14% growth from the previous quarter. Despite the higher vacancy rate, the market remains resilient, supported by consistent demand across key submarkets and industries.

The Houston office market showed signs of recovery in 2Q25, bouncing back from prior slowdowns. Despite a dip in leasing activity, there remains a substantial 73 million SF of available office space, creating both opportunities and challenges for landlords and tenants. With only 2.4 million SF under construction, the market's development pipeline remains constrained because of the upward trend in construction costs. Sublease rates have stabilized, offering a more optimistic outlook as we approach 3Q25. The focus is now on managing older office inventory, as there is a limited new supply on the horizon. The market outlook for 3Q25 is cautiously optimistic, bolstered by improving leasing activity and steady vacancy rates, despite ongoing challenges with older inventory.