Retail

Q2 2014 | Houston Retail | Research & Forecast Report

Houston’s retail market posted 1.2M SF of positive net absorption in the second quarter. Some of the tenants who opened new locations during the quarter include Whole Foods Market, Kroger Marketplace, Conn’s Appliances, Horse & Rider, Vineyard Vines, Trina Turks, Brucettes Shoes, and Harbor Freight Tools.

The average citywide vacancy rate fell 30 basis points between quarters to 6.3% from 6.6%, and by 50 basis points over the year from 6.8%. Currently, there is 1.2M SF in Houston’s retail construction pipeline, which includes a 136,000-SF Sam’s Club located at the NEC of Bellaire and West Grand Parkway, and a 90,900-SF HEB located on the southeast corner of San Felipe and Fountainview.

The citywide average quoted rental rate for all property types increased 3.1% from $14.73 to $15.19 per SF between quarters and 3.0% from $14.75 in Q2 2013. Houston retail rental rates vary widely from $10.00 to $85.00 per SF, depending on location, property type, and building class.

The Houston metropolitan area added 93,300 jobs between May 2013 and May 2014, an annual increase of 3.3% over the prior year’s job growth. Local economists have forecast 2014 job growth to remain strong, expecting between 68,000 and 72,000 new jobs. Houston’s unemployment rate fell to 5.0% from 6.1% one year ago. Houston area home sales were down by 7.3% between May 2013 and May 2014, the first decline in the past 34 months. The reduction was due almost primarily to a lack of inventory.

ABSORPTION, NEW SUPPLY & VACANCY RATES

Q2RetailAbsorptionTable

SALES ACTIVITY

Houston’s second quarter retail investment sales activity included 51 sales transactions. Total sales transaction value totaled $376M and the average price per SF was $163. The average cap rate was 7.2%.

LEASING ACTIVITY

Houston retail leasing activity in the second quarter reached 1.2M SF. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording eleven leases over 10,000 SF and five over 20,000 SF in the second quarter.

RENTAL RATES

According to our data source CoStar Property, the citywide average quoted rental rate for all property types increased 3.1% from $14.73 to $15.19 per SF between quarters and 3.0% from $14.75 in Q2 2013.

Houston Class A retail rental rates vary widely from $10.00 to $85.00 per SF depending on location and center type. Recent quoted rates for community centers and power centers range from $20.00 – $40.00 per SF and theme/entertainment centers range from $25.00 – $35.00 per SF. Lifestyle centers in Class A locations such as High Street, Uptown Park and The Vintage range from $40.00 – $85.00 per SF. Strip centers range from $30.00 – $50.00 per SF and neighborhood centers range from $25.00 – $45.00 per SF.

VACANCY & AVAILABILITY

The average citywide vacancy rate fell 30 basis points between quarters to 6.3% from 6.6%, and by 50 basis points over the year from 6.8%. This is the lowest Houston’s vacancy rate has been in the last 10 years.

By product type on a quarterly basis, theme/entertainment centers posted the largest decrease in vacancy, 2,060 basis points, from 30.5% in the first quarter to 9.9% in the second quarter 2014. Lifestyle centers recorded the largest increase in vacancy between quarters increasing 90 basis points from 4.9% to 5.8%. Houston’s retail construction pipeline contains 1.2M SF and second quarter deliveries totaled 612,000 SF.

ABSORPTION & DEMAND

Houston’s retail market posted 1.2M SF of positive net absorption in the second quarter.

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