September 30, 2026
It is easy to talk about office and retail as if each were a single market. The data behind our September Economic Outlook, prepared with economist Dr. John E. Silvia, shows that neither is. What it shows are two metros that came through the COVID shock on a similar economic path, and two commercial real estate markets where the difference between property classes and formats now matters more than the metro average.
Here is what that looks like in the numbers.
Texas jobs rebounded harder than the nation
Houston and Dallas employment followed the same cycle as the U.S. through the COVID shock and the rebuilding that followed, but with more amplitude. Houston lost about 160,000 jobs in 2020 and added about 178,000 in 2022. Dallas lost about 120,000 and added about 248,000 over the same stretch. Compared with Atlanta, Dallas has posted a higher amplitude of job gains throughout the recovery.
That momentum has cooled. Annual job gains in 2025 were about 34,000 in Houston and 46,500 in Dallas, well below the 2022 peaks. That slowdown is the backdrop for everything that follows.
Houston office: rents are growing again, at a modest pace
Houston office asking rents are growing at a 2.2% annual pace, down from a 3.6% high in 2023 but tracking employment. The Outlook describes 2.2% as a reasonable planning baseline for a slower-than-typical job growth environment.
Vacancy has stopped climbing, but it is still high
Vacancy in 4- and 5-star office buildings rose from 18.7% in 2019 to 25.6% in 2024, then eased to 24.8% in 2025. The COVID shock has passed and the rise has slowed, but that is a plateau, not a recovery. Vacancy remains well above its pre-COVID level.
The recovery is concentrated at the top
Net absorption, the change in occupied space, differs sharply by property class. Four- and five-star buildings have held up well. One- and two-star properties have posted negative net absorption for all of 2025 and year to date, and three-star sits in between.
Pricing follows the same pattern. Price per square foot for four- and five-star properties has recovered from its 2024 lows, and three-star pricing has recovered in a similar way. That improvement lines up with modest vacancy declines in both segments. One- and two-star vacancy has not improved year to date.
Cap rates have reset higher
Cap rates have moved higher since the pandemic and remain above pre-COVID levels across every property class. For 4- and 5-star properties, the cap rate peaked at 9.3% in 2024. A higher cap rate means a given income stream supports a lower value, so this shift matters for every office assignment.
Dallas retail: format matters more than the metro average
Retail asking rents picked up in all five Dallas retail categories after the COVID shock. Growth has since cooled, and the split is now by format. Year to date, mall asking rents are growing at 3.1%, while the other four categories range from 1.6% to 2.4%. That is consistent with the Wall Street Journal’s September 14 report on malls as a top-performing commercial real estate category.
Occupancy shows the same divide. General retail never saw a significant spike and now sits well below the other categories, with year-to-date vacancy of 3.3% against 7.7% to 7.8% for neighborhood and strip centers. Power centers have held below 5% since 2022 and stand at 4.4% year to date.
Malls are outperforming, with one warning sign
Malls have outperformed neighborhood and strip centers, but year-to-date vacancy of 6.7% has ticked back above 2024 (5.7%) and 2025 (6.1%) levels. It is an early uptick, and a trend worth watching.
Absorption is positive, but slowing
Net absorption remains positive across most Dallas retail categories, which suggests little overbuilding of retail space. The pace has slowed alongside smaller rent gains, a recent change in trend. Mall net absorption, left off the chart to avoid distorting the scale with 2020’s large negative reading, remains slightly negative.
What this means for valuation work
Pulling it together:
Employment: Houston and Dallas rebounded with more amplitude than the U.S., but annual job gains have slowed from their 2022 peaks.
Houston rents: 2.2% growth is a reasonable planning baseline in a slower-than-typical job growth environment.
Houston vacancy: 4- and 5-star vacancy has stopped rising but remains well above its pre-COVID level.
Houston absorption and pricing: the recovery is concentrated in top-tier buildings. One- and two-star space continues to post negative absorption.
Cap rates: above pre-COVID levels in every class. The 4- and 5-star rate peaked at 9.3% in 2024.
Dallas retail rents: growth has cooled. Malls are the standout at 3.1% year to date.
Dallas retail vacancy: general retail and power centers are the deepest and most stable. Watch mall vacancy.
Dallas retail absorption: positive in most categories, but the pace is slowing.
None of this resolves into a single story, which is the practical conclusion. A metro average cannot tell you what a specific asset in a specific submarket is worth. Translating this kind of macroeconomic context into a defensible value conclusion takes regional employment analysis tied to local conditions, sector-level insight across property types, and market-specific research grounded in observed evidence rather than broad assumptions.
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Let’s talk
We welcome the opportunity to discuss what these trends mean for your portfolio, your assignment, or your market. Schedule a virtual or in-person briefing with the TVG team and Dr. Silvia.
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The economic views expressed in this outlook are those of Dr. John E. Silvia and Dynamic Economic Strategy. They are general in nature, do not constitute a forecast adopted by Teel Valuation Group, and are not relied upon in any specific TVG valuation assignment. Each TVG appraisal reflects conditions as of its stated effective date.