Abstract
Houston vacancy ended 2025 at 7.1%, above the long-term average but down QOQ. Absorption stayed positive, and leasing was strong at 42.3M SF for the year. Fundamentals support development, but rising supply requires close monitoring to sustain market balance.
Houston
ECONOMY
United States (U.S.) economic momentum strengthened in the second half of 2025, with GDP growth accelerating on the back of robust services spending, rising artificial intelligence (AI) related investment, and a rebound in durable goods consumption.
Looking ahead to 2026, expanded business investment tax incentives are expected to support increased domestic capital investment, while larger personal tax refunds should bolster consumer spending.
However, the extent of the resulting economic benefits will depend on corporate confidence in the economic, financial market, and policy environment, as well as consumers’ capacity and willingness to spend rather than save.
The Port of Houston plays a vital role in the economic strength of both Houston and the state of Texas. The Port has demonstrated consistent year-over-year (YOY) growth, handling 335,275 twenty-foot equivalent units (TEUs) in November, container volumes totaled 4.0 million (M) TEUs, reflecting a 5.0% increase over the same period last year, according to the Port of Houston. Continued investment of $1.9 billion in infrastructure projects, including Project 11 and the Port’s 2040 Plan, positions the Port to expand capacity, support long-term growth, and strengthen its role as a dependable hub for importers and exporters.
Houston’s population growth is up 1.2%, adding more than 98,500 people in the past year, and 9.3%, adding more than 735,600 over the last five years.
Houston now ranks as the fourth most populous U.S. city and saw the largest numeric population gain from July 2023 to July 2024, per Census Bureau data.
National warehouse and storage employment continued its downward trend, decreasing by 28,000 positions compared with the same period last year.
WTI crude oil price reached $57.42 per barrel at the end of 2025, a 21.5% decline from the beginning of the year. United States Rig counts remain at 647 as of the end of the year, down 36 from this time last year. Natural gas prices increased 9.4% from this time last year with the current figure at $3.97 per million British Thermal Units.
The growth of AI development and investment in Texas has driven rising logistics demand statewide, supported by the state’s abundant and relatively low-cost power supply, pro-business environment, and availability of scalable land. As AI-related users expand, they require logistics space for the storage, manufacturing, and distribution of components critical to data center development and operations, while benefiting from Texas’s central location, robust transportation infrastructure, and speed-to-market advantages.
VACANCY
Houston’s vacancy rate ended 2025 at 7.1%, up 80 basis points (bps) YOY but down 10 bps quarter-over-quarter (QOQ) and remains 170 bps above the 5.4% long-term average.
Direct vacancy declined 10 bps QOQ to 6.8%, driven by sharp improvements in the West and Southwest submarkets, including a 350-bp reduction in the West and an 80-bp decrease in the Southwest.
The South submarket experienced the largest increase in vacancy this quarter, increasing 80 bps from the prior quarter.
Strong leasing activity at the end of 2025 may lead to increased absorption in early 2026, potentially placing downward pressure on vacancy rates.
Although net absorption outpaced deliveries at year-end, the expanding construction pipeline could pressure vacancy rates if demand remains at current levels.
RENT
Q4 2025 12-month rent growth continues to remain positive at 6.7%, bringing the total market rent per square foot (/SF) to a monthly figure of $0.75/SF between distribution, flex and manufacturing buildings.
Although rents have increased YOY, market wide rents remain flat compared to the prior quarter. Certain submarkets are recording elevated rents, while others, such as infill submarkets, are experiencing flat rent growth.
Select deals continue to reflect higher tenant improvement allowances tied to unique tenant requirements, while free rent and annual escalation rates remain consistent with prior-year levels.
DEMAND
Net absorption remained positive in the fourth quarter, with 4.4 million square feet (M SF) being absorbed, bringing 2025 net absorption to 11.0M SF. Although it remains positive, net absorption on a yearly and quarterly basis is down, indicating a slowdown from the 20.5M SF that was absorbed in 2024.
Despite a decline in net absorption, current levels remain elevated, exceeding the 2005 to 2020 historical average by more than 410,000 SF, reflecting demand levels above the pre-COVID period.
Leasing activity remains elevated compared to the previous quarter and year, with 9.3M SF leased in the fourth quarter, bringing 2025 leasing to 42.3M SF.
Current leasing is 6.7M SF above 2024 and 15.3M SF above the historical average, signaling strong demand and a robust end to 2025.
Foxconn drove significant market demand in 2025, purchasing over 1.0M SF from Dalfen in the Northwest submarket and leasing more than 600,000 SF at Transwestern’s Innerbelt Northwest Logistics Park, along with over 650,000 SF in the Northern submarket at Prologis Central Distribution Center.
Crane served manufacturing demand continues to remain strong in the Houston market with limited availability for crane served options.
CONSTRUCTION
The construction pipeline continues to grow, with 19.5M SF currently under construction (UC) across 93 buildings, 17.7% of which is pre-leased to users in industries such as manufacturing, e-commerce, energy, and 3PL’s.
The pipeline increased 32.5% from this time last year due to Houston’s strong leasing demand and tight vacancy rates that were seen in 2024.
Of the 19.5M SF UC, more than 40% (39 projects) fall in the 150,000-300,000 SF range, largely driven by capital constraints and scarcity of well-located land. Large bulk supply 500,000 SF+ is becoming scarcer due to bulk demand returning to the market with only one available speculative project UC in this threshold.
The market delivered 14.6M SF of new supply in 2025, a decrease of 2.4M SF from 2024, continuing the downward trend following the all-time peak in 2023. However, deliveries are expected to remain near current levels, or potentially increase, given the expanding construction pipeline.
Houston’s strong fundamentals continue to support new development; however, close monitoring of supply levels will be critical to maintaining long-term market balance.
Data in this report was provided by KBC Advisors, St. Louis Federal Reserve, The Port of Houston, and CoStar.
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