Supply and Demand
Houston's retail vacancy rate ended Q3 2026 at 5.7%, down 10 basis points quarter-over-quarter (QOQ) and unchanged year-over-year (YOY). Vacancy has remained below 6.0% for 20 consecutive quarters and below the 6.2% average since 2006. Five of Houston's 13 retail submarkets recorded vacancy below 5.0%, led by the Far North (4.1%) and Southwest (4.2%). Deliveries slowed to 343,000 square feet (sf) in Q3, bringing the year-to-date (YTD) deliveries to 1.8 million square feet (msf), 22.2% below the same period in 2025.
At the close of the quarter, 189 retail developments totaling 4.5 msf were under construction as new project starts continued to outpace completions. The pipeline reached its highest level since Q3 2023 and remained above the five-year quarterly average of 3.8 msf. General Retail made up 51.1% of space underway, followed by Shopping Centers (40.8%) and Regional Malls (8.1%).
Net absorption totaled 444,000 sf, reversing the prior quarter’s occupancy losses and bringing YTD net absorption to 613,000 sf, compared with 1.3 msf for the same period in 2025. Despite the rebound, the quarter remained below the five-year quarterly average of 789,000 sf. Occupancy gains exceeded the space delivered during the quarter, with seven of 13 submarkets recording positive net absorption. By property type, Shopping Centers drove occupancy gains with 388,000 sf, while General Retail recorded 55,000 sf and Regional Malls remained essentially flat.
Leasing activity totaled nearly 1.8 msf during Q3, marking the lowest level since Q1 2021. Leasing deals totaled 5.7 msf YTD, down 22.0% from the same period in 2025 with deal count falling more sharply, with 454 transactions signed in Q3 2026, down 12.5% QOQ. While activity slowed from the elevated pace recorded over the past several years, tenant demand remained active in necessity-based retail categories and growing suburban trade areas. Several of the quarter's largest leases occurred across multiple submarkets, highlighting the breadth of tenant activity despite lower overall leasing volume. Despite slower leasing activity and absorption remaining below historical averages, limited new supply and stable vacancy continued to support healthy market fundamentals.
Pricing
Rental rates ended Q3 2026 at $22.05 per square foot, up 2.4% QOQ and 8.2% YOY, marking the strongest annual growth on record. Rents have risen for five consecutive quarters, with YOY growth accelerating in each of the past four, pointing to sustained landlord pricing power. Gains were widespread, with 10 of 13 submarkets recording YOY increases. Since 2022, asking rents have climbed 13.0% even as vacancy expanded by 60 basis points, underscoring the pricing power landlords have retained amid constrained availability of quality space rather than exceptionally strong leasing demand.
