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Retail Demand for Space Exceeds New Construction

Houston Ranks No. 1 for Square Footage of New Retail Projects, CoStar Data Shows.

Photo Courtesy of ICHZ.

The need for U.S. retail property is beginning to look more like the boom in industrial property: Demand is outpacing the new supply of available space.

Less retail square footage was leased than came on the market in 2019 and early this year, according to CoStar data. But that negative absorption of space began to turn positive in the second quarter of 2021, with demand starting to outrun the new supply of retail property and peaking in the third quarter.

Houston topped the list for both the most retail space leased and the most retail construction completed in the past 12 months, according to CoStar. The market saw 5.11 million square feet more space occupied than vacated in that time, while there was 3.41 million square feet of new space made available.

When net absorption, or the amount of newly occupied space minus newly available space, exceeds total construction completions, vacancy declines. And the retail vacancy rate has dropped from 5.1% in the first quarter this year to 4.7% in the fourth quarter so far, according to CoStar.

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