Houston Retail Market Report – Q4 2015

by CoyDavidson on February 9, 2016

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Houston’s retail market remains remarkably strong despite downturn in the energy industry

Despite the decrease in oil prices over the past year and the negative effects felt in the office and industrial real estate sectors, Houston’s retail market has remained resilient. Houston’s average retail vacancy rate remained steady between quarters at 5.8%, and decreased 30 basis points from 6.1% over the year.

During the fourth quarter, 1,153,907 SF of Houston’s retail inventory was absorbed, pushing the year-end 2015 net absorption to 4.2M SF. Retail leasing activity increased 53.4% between quarters, recording 979,400 SF in Q4 2015. The citywide average quoted retail rental rate increased marginally between quarters from $15.15 to $15.20 and annually by 2.1% from $14.88 per SF NNN.

Approximately 2.8M SF of retail space is under construction and 52.5% is pre-leased. Over 1M SF of new inventory delivered during the fourth quarter and 83.0% of the new product is pre-leased. Several new stores opened in River Oaks District including iPic Theatres, Hermes, Cartier, and Harry Winston to name a few.

According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created only 23,700 jobs between November 2014 and November 2015. This is an annual increase of just 0.8%, well below the 2014 annual growth rate of 3.4% (97,500 jobs). Local economists have predicted 2015 annual job growth will be around 20,000 jobs, however, we believe that number will be lower.

VACANCY & AVAILABILITY

Houston’s average retail vacancy rate remained at 5.8% over the quarter. At the end of the fourth quarter, Houston had 16.4M SF of vacant retail space. Among the major property types, single tenant retail has the lowest vacancy rate at 1.9%, followed by theme/entertainment at 3.6% and then power centers at 3.8%. The highest vacancy rate is among outlet centers at 10.3%, and the largest amount of vacant space by size is among neighborhood centers, which has 6.2M SF of vacant space. Houston’s retail construction pipeline had 2.8M SF of projects underway at the end of the fourth quarter. The largest project under construction is the 450,000-SF The Shoppes at Parkwest located on I-10 and Katy Fort Bend Rd, in the Far Katy North submarket. The center is 100% pre-leased, and some of the tenants include Bed Bath & Beyond, buybuy Baby, DSW, Kirkland’s, and DXL. The center is scheduled to deliver in July 2016.

RENTAL RATE & VACANCY PERCENTAGE

Q4 2015 Retail Market Research Report Texas Colliers International

ABSORPTION & DEMAND

Houston’s retail market posted 1,153,907 SF of positive net absorption in the fourth quarter, pushing the 2015 year-end total net absorption to 4,235,765 SF. There were several major tenant move-ins contributing to net absorption gains in the fourth quarter including Planet Fitness (21,320 SF) in the Far Katy North submarket, AP McGill Enterprises (20,900 SF) in the Stafford submarket, Party City (18,000 SF) and Tuesday Morning (12,000 SF) in the NASA/Clear Lake submarket, and iPic Theatres (10,000 SF), Hermes (10,000 SF) and Cartier (6,000 SF) in the Inner Loop River Oaks submarket.

RENTAL RATES

According to CoStar, our data service provider, Houston’s citywide average quoted retail rental rate for all property types increased marginally from $15.15 per SF NNN in the third quarter, to $15.20 per SF NNN in the fourth quarter. According to Colliers’ internal data, Class A in-line retail rental rates can vary widely from $20.00 to $85.00 per SF, depending on location and property type.

LEASING ACTIVITY

Houston’s retail leasing activity, which includes renewals, increased by 53.4% on a quarterly basis, recording 937,700 square feet in Q4 2015.

Click here to download the report as a PDF.

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