Houston Retail Market Report | Q4 2017

by CoyDavidson on January 26, 2018

Houston Shopping Center

Houston’s retail market remains healthy through year-end

Houston’s retail market has shown resiliency amid an energy downturn, retailer bankruptcies and store closings, as well as a category 4 Hurricane which flooded Houston in August. Despite these events, Houston’s average retail vacancy has remained under 6% over the past few years and the average retail vacancy rate remained steady between quarters, holding at 5.6%. Absorption slowed during the fourth quarter, but this was mostly due to decreased construction deliveries.

Recent announcements of store closings by Sam’s, Macy’s and Charming Charlie adds to a growing list that includes; Sears, Gander Mountain, Toys R Us, Sports Authority and Walgreens to name a few. As landlords look to backfill big box vacancies with indoor entertainment users, the larger retailers that are still in business are looking for creative ways to keep consumers happy and increase market share. Kohl’s for example, would like to partner with a food or convenience concept to help fill some of their unused space after downsizing and reconfiguring some of its stores. Amazon is looking to expand into brick and mortar with a possible acquisition of a retailer such as Target. E-commerce was the big story in 2017 with millions of consumers shopping online. H-E-B, Kroger, Walmart and Whole Foods have all jumped on the online shopping bandwagon with home delivery and curb side pickup. We expect the trend to continue and grow in 2018, as consumers look for ways to add a few extra hours back to their week.

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 remained steady at 5.6% between quarters and increased 20 basis points from 5.4% in Q4 2016. At the end of the fourth quarter, Houston had 15.8M SF of vacant retail space on the market. Among the major property types, single-tenant retail had the lowest vacancy rate of 1.7%, followed by theme/entertainment at 3.3%, lifestyle centers at 3.8%, power centers at 4.1% and malls at 4.5%. The highest vacancy rate is among outlet centers at 11.3% and the largest amount of vacant space by square feet is among neighborhood centers. There is currently 2.9M SF of retail space under construction of which 64% 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 The Kirby Collection in the Inner Loop River Oaks submarket, The Village at Riverstone in the Far New Territory submarket, Augusta Woods Village in the Far North submarket and The Shoppes of Kemah in the NASA/Clear Lake submarket.

Absorption & Demand

Houston’s retail market posted 88,083 square feet of positive net absorption in the fourth quarter, an 83% 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 increased between quarters from $14.88 per SF NNN in Q3 2017 to $15.17 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, increased quarterly from 1.5M square feet in Q3 2017 to 1.7M square feet in Q4 2017.

Market Summary

▸ Click here to download the report as a PDF.

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