Houston’s Retail Market Vacancy Rate Drops Below 7.0%
Houston’s retail market posted 560,000 SF of positive net absorption in the second quarter, bringing the year-to-date total to 960,000 SF. Some of the tenants who opened new locations during the second quarter include HEB, LA Fitness, Michael’s, and Monkey Joe’s.
Although 276,000 SF of new retail space delivered during the second quarter, Houston’s retail vacancy rate decreased from 7.0% to 6.8% between quarters and from 7.2% in Q2 2012. Currently, there is 632,000 SF in Houston’s retail construction pipeline, which includes Whole Foods’ newest location in BLVD Place, located along Post Oak Blvd at San Felipe.
The citywide average quoted rental rate for all property types increased from $14.72 to $14.75 per SF between quarters and from $14.56 in Q2 2012.
Houston retail rental rates vary widely from $10.00 to $70.00 per square foot, depending on location, property type, and building class.
The Houston metropolitan area added 91,600 jobs between May 2012 and May 2013, an annual increase of 3.4% over the prior year’s job growth. Further, Houston’s unemployment fell to 6.4% from 6.8% one year ago and Houston area home sales increased significantly, growing by 28.0% over the year.
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.
Houston retail investment sales activity increased between quarters with 205 sales transactions recorded in the second quarter compared to 180 in the first quarter. Total sales transaction volume totaled $1.1B and the average price per SF was $180. The average cap rate was 8.0%.
Several of the more significant transactions that closed during the second quarter include: World Class Capital Group purchased the 10-building, 450,000- SF North Oaks Shopping Center from AEW Capital Management in June for $46.2M. The retail power center, located in the Northwest submarket, was 92% leased at the time of sale and was purchased as an investment. TJ Maxx, Ross Dress for Less, Hobby Lobby, Big Lots, and Staples are tenants in the center.
Capcor Partners LLC purchased the 3-building, 102,837-SF Sheldon Forest Shopping Center from Weingarten Realty Investors in June for $8.5M. The neighborhood shopping center, located in the East submarket, was 98% leased at the time of sale. The center is anchored by Gerland’s Food Fair and other tenants include Burkes Outlet, A Sound Discount Warehouse, Family Dollar, and Boost Mobile.
BNL Group Properties, Inc. purchased the 20,580-SF Shops at Fairfield from Satya, Inc. in April for $5.8M. The center is located along the perimeter of the Houston Premium Outlet Mall, located in the Northwest submarket. The strip center was 94% leased at the time of sale. Tenants include Verizon Wireless, Paris Salon, All Floors & More, Tomiko Restaurant, and Sergio’s Mexican Grill.
Houston retail leasing activity in the second quarter reached 939,600 SF, bringing the year-to-date total to 2M SF. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording seventeen leases over 10,000 SF and only five over 20,000 SF in the second quarter.
The citywide average quoted rental rate increased to $14.75 from $14.72 per SF NNN between quarters and increased from $14.56 per SF NNN in Q2 2012.
Class A in-line retail rental rates vary widely due to location and center type. Recent quoted rates for neighborhood centers, power centers and unanchored strip centers, range from $20.00 – $35.00 per SF (Class B and below can rent for $12.00 to $20.00 per SF) while theme/entertainment centers range from $25.00 – $35.00 per SF. Lifestyle centers and newly constructed strip centers in Class A locations such as High Street, Uptown Park and The Vintage range from $40.00 – $70.00 per SF.
VACANCY & AVAILABILITY
Houston’s retail vacancy decreased from 7.0% to 6.8% in the second quarter. By product type on a quarterly basis, lifestyle centers, theme/entertainment centers, and single tenant properties all posted a decrease in vacancy rate of 30 basis points followed by strip centers, power centers, and malls decreasing vacancy by 20 basis points. Outlet center vacancy rates saw the largest increase between quarters, 40 basis points.
Houston’s retail construction pipeline contains 632,000 SF and second quarter deliveries totaled 276,000 SF.
ABSORPTION & DEMAND
Houston’s retail market posted 560,000 SF of positive net absorption in the second quarter, bringing the year-to-date positive net absorption to 960,000 SF. The opening of the new HEB Market in Conroe and LA Fitness in the Northwest submarket, contributed over 163,000 SF to the second quarter’s positive net absorption. Other notable tenants that moved into their space during the first quarter include: Kelsey-Seybold Clinic, Main Event, Michaels, Monkey Joe’s, and PETCO.
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