Commercial | Summer 2025

Many bemoaned the death of brick-and-mortar retail as pandemic lockdowns shuttered stores across the nation. Five years later and retail has been the best performing real estate asset not only in Texas, but throughout most of the U.S.

Lockdowns and, more recently, higher interest rates, dried up the construction pipeline. This led to a shortage of space in growing markets as households eagerly returned to in-store shopping. Retailers scrambled for storefronts and paid higher rents. Space in the most desirable locations was often unavailable.

Retail landlords continue to enjoy a somewhat rosy situation. In first quarter 2025, 12-month rent growth was up over 2 percent. There has been a run-up in inventory with supply exceeding demand. Several high-profile big-box closures, including Party City and Joann, explain much of this. Most excess supply should soon be accounted for with retailers struggling to find locations.

A long-run market imbalance is also unlikely for two more reasons. First, almost all new retail developments are happening in conjunction with population growth. The typical retail center being delivered in Texas is the grocery-anchored community center located near new residential developments. Second, developers are increasingly repositioning older centers or converting them to new uses. Some sites are being converted to residential.

Texas Inventory Trends

Historically, Texas had more retail space per person than the national average at 56 square feet compared to 36 square feet for the U.S. This was partly due to a younger household age profile (growing families typically purchase more items). Even as the population profile came to more closely resemble the nation, Texas offered other stimulants to retail development. Texas still has lower land costs that allow retailers to build larger stores for a given investment. The state’s lower personal tax burden means more disposable income relative to shoppers nationally. Across metro areas, space per person varies substantially from a high of 80 square feet in Lubbock to a low of 44 in Longview. Dallas-Fort Worth, Houston, and San Antonio stand at 56 to 57 square feet per resident while Austin comes in at 48.

In the last five years, total inventory was up by 4 percent statewide. Unlike total inventory, retail space per person fell 4 percent across Texas while the national level was unchanged. Conditions varied by market, but per capita, inventory fell in all the largest cities as population growth outstripped retail development. Austin’s space per person was down 7 percent, DFW’s fell by 6 percent. Houston matched the statewide 4 percent decrease, and San Antonio was down 3 percent. The largest decrease was in Lubbock, down 10 percent, and San Angelo had the biggest increase in per capita inventory at 5 percent.

Population Versus Income as Retail Driver

Population and income influence retail development. Population growth is a better predictor of metro area retail inventory change than income. Across all metro areas, since 2019, we have seen a 1 percent growth in retail inventory for every five-percentage point increase in population. The figure shows the positive relationship between population and inventory change.

Tentative Impact of E-Commerce on Texas

E-commerce continues to make inroads in Texas. Its share of total retail spending has grown from 10.6 to 16.1 percent since 2019, but the explosive growth following the pandemic has slowed. Most retail experts note that a multi-channel strategy with online and in-store sales is the path to retail survival. There is a measurable impact on Texas metro areas.

Since much recent warehouse development has been for e-commerce fulfillment, local warehouse inventory is often used as a proxy for e-commerce penetration in a market. Taking this approach, higher online spending, measured with warehouse growth, is not impacting retail inventory. The same analysis, however, hints that when accounting for warehouse growth, faster local income growth is associated with slower retail inventory growth. Might it be that as households’ incomes increase, they spend more online, thus reducing the demand for physical retail? This may be logical. Unfortunately, the results are inconclusive.

As part of our ongoing coverage of Texas retail markets, we will revisit this pattern as more data comes in. For the time being, retail remains a bright spot in commercial real estate despite the increasing popularity of online shopping.

Daniel Oney, Ph.D. ([email protected]) is research director with the Texas Real Estate Research Center.