Top 4 Metro Areas in Texas account for 20% of retail space absorption nationwide

One state is way out in front when it comes to retail net absorption.

Retail vacancies in Texas dropped by 40 basis points to 4.7% in the second quarter, fueled by space absorption of more than 34 million sq. ft. In fact, the state’s top four metro areas — Dallas-Fort Worth, Houston, San Antonio, and Austin—accounted for 20% of all retail space absorbed on net nationwide over the past year.

It’s a trend that is likely to continue considering that the population of these metros is expected to rise by 1.4 million residents over the next five years, according to Marcus & Millichap’s second quarter retail real estate report.

All but Austin recorded 2-million-plus sq. ft. absorbed over the last 12 months. Other metros recording that total included Phoenix, Chicago, Philadelphia, Atlanta, and Tampa-St. Petersburg.

That helped keep rents rising for the fifth consecutive year. The national average asking rent of more than $20 per sq. ft. for multi-tenant leases are 11.5% higher than they were in 2019. Single-tenant leases now approach $22, a 9.3% increase over the pre-COVID period.

The closing of 2,600 stores in 2023 — plus additional closures expected by Party City, Bed Bath & Beyond, and Tuesday Morning — could alter the current fundamentals of the market, according to the national real estate investment services firm. Its report noted, however, that slow construction activity and floor plans up for lease will lead a host of expanding retailers to fill the empty spaces.

“Recent leasing activity suggests dollar stores, off-price retailers and grocers are most likely to fill these spaces,” said Marcus & Millichap research analyst Erik Pisor. “Experiential retailers, including trampoline parks and pickleball courts, will also play a role.”

What’s more, the nationwide net absorption of 43 million sq. ft. was more than double the new retail space constructed over the past year, sending the national vacancy rate to a historic low of 4.3%.

As a result, noted the report, expanding national brands are quickening their expansions into smaller markets. In April, the average vacancy rate in tertiary markets fell to 4.1%.