Houston Retail Market Report | Q3 2017

by CoyDavidson on November 3, 2017

Houston’s retail market sees a slight uptick in vacancy in the third quarter

Houston’s retail market activity slowed during the third quarter but still remains healthy despite a decrease in absorption and a slight uptick in vacancy. In August 2017, Houston faced one of the worst natural disasters in history. Hurricane Harvey, a Category 4 hurricane, slammed the Texas coast and dumped over 50 inches of rain in parts of Houston. The event caused widespread flooding, destroying homes, businesses and infrastructure. The retail sector saw supply chain interruptions which halted distribution logistics for a week or more. Ships carrying consumer goods were delayed due to ports shutting down and local distribution facilities could not get products delivered to consumers. A report by First Data shows that retail spending increased the week before the hurricane, but plummeted 58.7% week-over-week and 43.7% year-over-year in Houston and its surrounding areas at the peak of the hurricane. According to the Department of Commerce, September saw a slight uptick in consumer spending, mostly from purchases of replacement items damaged by Harvey.

According to the U.S. Bureau of Labor Statistics, the Houston MSA created 53,500 jobs (not seasonally adjusted) between August 2016 and August 2017, an annual growth rate of 1.8%. Industry sectors that added jobs include: Mining and Logging, Manufacturing, Professional and Business Services, Health Care and Social Assistance, and Educational Services.

VACANCY & AVAILABILITY

Houston’s average retail vacancy rate increased 20 basis points from 5.4% to 5.6% over the quarter and by 40 basis points from 5.2% in Q3 2016. At the end of the third quarter, Houston had 15.7M SF of vacant retail space on the market. Among the major property types, single-tenant retail had the lowest vacancy rate of 1.6%, followed by theme/entertainment at 2.3%, lifestyle centers at 3.2%, malls at 3.9% and power centers at 4.4%. The highest vacancy rate is among outlet centers at 11.8%, and the largest amount of vacant space by square feet is among neighborhood centers.

There is currently 2.8M SF of retail space under construction of which 55.7% is pre-leased. The majority of the projects under construction are located in the outlying suburban submarkets adjacent to rapidly growing residential developments. Some of those projects include Waller Town Center in the Far Northwest submarket, The Village at Riverstone in the Far New Territory submarket, Buffalo Springs Marketplace in the Montgomery County submarket and University Commons in the Far Southwest submarket.

RENTAL RATE & VACANCY PERCENTAGE

ABSORPTION & DEMAND

Houston’s retail market posted 438,000 square feet of positive net absorption in the third quarter, a 66% decrease from the previous quarter.

RENTAL RATES

According to CoStar, our data provider, Houston’s citywide average quoted retail rental rate for all property types decreased between quarters from $15.17 per SF NNN in Q2 2017 to $14.88 per SF NNN. These average rental rates are typically much lower than actual deal rates since they include all retail property types and classes, the majority of those properties are not well leased and are listed with discounted asking rates. According to Colliers’ internal data, Class A in-line retail rental rates can vary widely from $30.00 to $85.00 per SF, depending on location and property type.

LEASING ACTIVITY

Houston’s retail leasing activity, which includes renewals, decreased quarterly from 1.4M square feet in Q2 2017 to 1.2M square feet in Q3 2017.

▸ Click here to download the full report as a PDF.

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