Houston’s Retail Vacancy Rate Remains at 7.2%
Although 120,000 square feet of new retail inventory was added to the market during the third quarter, Houston’s retail vacancy rate remains at 7.2%. Another 1.1M square feet of retail space is currently in the construction pipeline, due to deliver over the next 6 months.
Houston’s retail market posted 127,000 square feet of negative net absorption in Q3 2012, the majority of which was caused by larger tenants such as Cloth World and Bally Total Fitness closing select locations in neighborhood centers. Some of the tenants expanding in the market include Anna’s Linens, Charming Charlie, and Planet Fitness.
The citywide average quoted rental rate for all property types is $14.30 per square foot; however, rental rates vary widely from $10.00 to $70.00 per square foot depending on location and property type.
The Houston metropolitan area added 89,500 jobs between August 2011 and August 2012, an annual increase of 3.5% over the years prior job growth. Further, Houston’s unemployment rate fell to 7.0% from 8.6% one year ago which has bolstered annual home sales in the Houston area by 20.0%. With continued expansion in the energy industry and a strong housing market, Houston’s economy is expected to remain healthy for both the near and long-term.
Vacancy & Availability
Houston’s retail vacancy rate remained at 7.2% in the third quarter, and decreased 40 basis points from 7.6% reported one year ago. By product type on a quarterly basis, outlet centers posted the largest decrease of 140 basis points (bps) to 10.1% vacancy. In contrast, strip centers vacancy rates rose by 40 basis points between quarters.
Houston’s retail construction pipeline contains 1.1 million SF, of which approximately 50% is pre-leased. Third quarter deliveries totaled 120,300 SF.
Absorption & Demand
Houston’s retail market posted (122,000) SF of negative net absorption in the third quarter bringing the year-to-date total to 34,500 SF. The majority of the negative net absorption occurred in older neighborhood centers. Some of the tenants that moved out of space and did not relocate include Bally Total Fitness, Cloth World, Dollar Store, and Chuck E. Cheese’s.
By property type, power center retail led the market in the third quarter with 166,200 SF in positive net absorption, followed by malls posting 37,800 SF. Some notable tenants that moved into their space during the second quarter include: Michaels, Charming Charlie, and James Avery Jewelry moved into new space in Cypress Towne Center located in the Northwest submarket; H&M opened in Willowbrook Mall located in the Northwest submarket; Anna’s Linens located in the Far West submarket and Curves Sports Bar located in the Near Southeast submarket.
The citywide average quoted rental rate decreased to $14.30 from $14.45 per SF NNN. Class A in-line retail rental rates vary widely due to location and center type. Recent quoted rates for unanchored strip centers range from $20.00 – $35.00 per SF while power centers with three or more strong anchors range from $10.00 – $35.00 per SF. Lifestyle centers such as Uptown Park and The Vintage range from $40.00 – $70.00 per SF.
Houston retail leasing activity for third quarter 2012 totaled 1,018,000 SF in 349 transactions compared to 501 transactions totaling 1,803,000 SF one year ago. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording only fifteen leases over 10,000 SF and five over 20,000 SF in the third quarter.
Some of the leasing activity in the third quarter includes: Sprouts Farmers Market leased 28,000 SF in Spring Cypress Village in the Northwest submarket; Thrift Outlet leased 26,400 SF in Almeda Square in the Near Southeast submarket; 99c Store leased 18,000 SF lease in Fry Morton Plaza in the Far Katy North submarket; American Girl leased 17,700 SF in Memorial City Mall in the Near West submarket; Planet Fitness leased 17,500 SF in Fondren Southwest Village in the Southwest submarket; and Wellborne Cinema leased 15,180 SF in Alvin Towne Center in the Southeast Outlier submarket.
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