Supply And Demand
Houston's retail vacancy rate ended Q2 2026 at 5.8%, up 10 basis points both quarter-over-quarter (QOQ) and year-over-year (YOY). Vacancy has remained within a narrow range of 5.0% to 5.8% over the past four years, underscoring the market's stability. Following three consecutive quarters of declining completions, deliveries rebounded to 842,767 square feet (sf), up from 524,272 sf in Q1 2026, bringing year-to-date completions to nearly 1.4 million square feet (msf).
At the close of the quarter, 161 retail developments totaling 3.8 msf were under construction, slightly below the five-year quarterly average of 3.9 msf. Development remained concentrated in a handful of submarkets, with the Far Northwest, East and Far Southwest accounting for 2.0 msf, or 54.7% of all space underway. The Far Northwest led with 734,342 sf, followed by the East (715,204 sf) and Far Southwest (631,472 sf). Notable projects underway included San Jacinto Marketplace, Fidelis Realty Partners' redevelopment of the former San Jacinto Mall in Baytown, and NewQuest Properties' Texas Heritage Marketplace in Katy.
Occupancy losses totaled 517,946 sf, marking the first quarter of negative absorption since Q4 2006. Given Houston's 398.4 msf inventory base, the decline had minimal impact on overall market fundamentals and effectively resulted in a flat quarter. Occupancy losses in the Central/Inner Loop, Far North, East and NASA/Clear Lake/Galveston submarkets drove the decline, with each recording more than 100,000 sf of negative absorption.
Leasing activity totaled 1.5 msf, down 26.2% QOQ and 38.2% YOY. This marked the lowest level since Q2 2020 and reflected tenant demand normalizing from the elevated levels of recent years as retailers adopt a more cautious approach to expansion and site selection. Leasing volume was accompanied by a decline in deal count, with 474 leases signed in Q2 2026, down nearly 11.0% QOQ, as tenants favored smaller footprints and became more selective. The West/Northwest submarket led leasing with 242,139 sf, followed by South (202,878 sf) and the Katy Area (189,722 sf).
Pricing
Rental rates ended Q2 2026 at $21.52 per square foot (psf), up 1.2% from the previous quarter and 6.2% higher than the $20.26 psf recorded YOY. Continued rent growth despite softer leasing activity and a disciplined pace of new supply underscores the market's resilient fundamentals and landlords' pricing power. The South submarket recorded the strongest YOY growth, rising 9.0% to $19.03 psf, followed by NASA/Clear Lake/Galveston, up 8.5% to $18.08 psf, and the Katy Area, up 6.9% to $26.38 psf.
