Boom or Bust? A Deep Dive into Houston’s Commercial Real Estate Trends

Written by Anthony Paulmeno – VP of Investor Relations & Funding

Castle Group Investments

May 5th, 2025

Houston's CRE Crossroads:

Houston's commercial real estate (CRE) market in 2025 presents a dynamic and evolving landscape, shaped by shifting demographics, post-pandemic work trends, and macroeconomic factors. While sectors like industrial and suburban office continue to see robust growth fueled by logistics demand and corporate relocations, other areas — particularly inner-city Class B office and aging retail assets — are facing mounting challenges. Vacancy rates remain high in downtown corridors, while emerging neighborhoods on the outskirts of the metro are witnessing a wave of new investment and development.

This comprehensive market overview explores the current performance and outlook across the three major CRE sectors: office, industrial, and retail. It highlights which submarkets are thriving due to population migration, infrastructure expansion, and economic diversification — and which are struggling under the weight of obsolete inventory or lagging demand. For brokers, investors, and developers alike, understanding Houston’s CRE hotspots versus cold zones is essential for navigating opportunities and avoiding costly missteps in 2025.

Downtown (CBD) & Class B Distress:

Houston’s CBD saw net negative absorption of over 1.2 million square feet in 2024. Class B buildings, in particular, are bearing the brunt of remote work shifts and corporate downsizing. Vacancy rates in these properties remain above 27%, with many buildings offering deep concessions or going dark altogether. The demand just isn't returning at the pace landlords had hoped.

*Key Insight: Many tenants are downsizing or upgrading to Class A space in better neighborhoods with walkable amenities, leaving behind older, less-efficient offices.

The Woodlands & Energy Corridor Rebound

In contrast, suburban nodes like The Woodlands and Energy Corridor are shining. The Woodlands maintains above a 90% occupancy rate and continues to attract regional headquarters, law firms, and med-tech companies. The Energy Corridor — previously hit hard by the oil downturn — has benefited from rising energy prices and employer-driven relocations, leading to a steady rebound in leasing activity.

Pro Tip: Investors are increasingly targeting suburban Class A office buildings with flexible layouts and strong parking ratios.

Industrial Market: Cooling from Red-Hot to Strong:

Houston’s industrial real estate market remained among the strongest in the country throughout 2024, though signs of a slight cool-down have emerged following the red-hot pace of the post-pandemic years. Over 16 million square feet of industrial space was absorbed during the year, driven largely by continued demand in e-commerce, last-mile logistics, and distribution. Houston’s strategic location—with direct access to the Port of Houston and major highways—has made it a critical node in national and global supply chains. While the fundamentals remain strong, construction deliveries dropped by 53.5% year-over-year, signaling a more measured approach by developers in the face of economic uncertainty and rising interest rates.

Despite the slowdown in new builds, key submarkets continue to show resilience and strong leasing activity. Northwest Houston, especially around Beltway 8 and Highway 290, has held firm as a logistics stronghold with persistently low vacancy rates. The Southeast Houston and Port regions also remain vital, thanks to their connectivity and suitability for port-related warehousing. A notable shift in the market is the growing preference for build-to-suit developments over speculative construction. Developers, now facing tighter lending standards and elevated material costs, are focusing on customized projects with guaranteed tenants, ensuring more predictable returns in a changing economic landscape.

Retail Market: Suburban Growth & Resilience:

While brick-and-mortar retail continues to evolve, Houston’s retail market demonstrated notable resilience in 2024. Vacancy rates held steady at a low 5.3%, outperforming the five-year average, and net absorption reached over 1.9 million square feet. Much of the demand centered around suburban lifestyle centers, grocery-anchored retail strips, and healthcare-related retail spaces.

 Emerging hotspots like Valley Ranch in the northeast have seen growth driven by new residential developments and commercial expansion, while areas such as Katy and Cypress—particularly ZIP codes 77493 and 77433—have experienced retail booms fueled by rapid population increases and the addition of new schools and master-planned communities. However, not all areas are thriving; older inner-loop strip centers lacking anchor tenants or experiential concepts are underperforming, signaling a shift in consumer and tenant preferences toward more dynamic, community-integrated retail environments.

Market Trend summary Report:

Location. Migration. Zoning:

Investors, brokers, and developers in Houston must stay agile in 2025. The shift toward suburban concentration, hybrid work models, and population migration west and north of the city is changing the game.

Whether you're financing a retail strip, buying a medical office, or repositioning a warehouse, location and submarket knowledge are key. Follow the rooftops. Follow the infrastructure. And watch the zoning.