Houston Retail Market Report | Q4 2016

by CoyDavidson on January 26, 2017

Houston’s retail market remains strong and moves into 2017 with a healthy outlook

Houston’s retail market ends 2016 on a positive note and moves into 2017 as the healthiest commercial real estate sector in the metro. The average vacancy rate remained unchanged at 5.8% on an annual basis and only increased 10 basis point on a quarterly basis from 5.7% in Q3 2016. Although Houston lost about 80,000 high income jobs between 2014 and 2016, retail market indicators show no signs of a struggling economy. According to our data provider, CoStar Property, Houston ranks fourth nationally in construction activity. Approximately 74.6% of the retail space under construction at the close of Q4 2016 is pre-leased. Despite the 1.3M SF of new inventory delivered in Q4 2016, Houston’s average retail vacancy rate remains low at 5.8%, only 10 basis points higher than the 5.7% recorded in the previous quarter. Although Houston lost about 80,000 high income jobs between 2014 and 2016, retail market indicators show no signs of a struggling economy. According to our data provider, CoStar Property, Houston ranks fourth nationally in construction activity. Approximately 74.6% of the retail space under construction at the close of Q4 2016 is pre-leased. Despite the 1.3M SF of new inventory delivered in Q4 2016, Houston’s average retail vacancy rate remains low at 5.8%, only 10 basis points higher than the 5.7% recorded in the previous quarter.

Houston’s retail leasing activity, which includes renewals, decreased over the quarter from 1.4M SF in Q3 2016 to 1.1M SF. 2016 year-end leasing activity was actually more than the previous year, with 6.2M SF compared to 5.7M SF in 2015.

According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created 14,200 jobs (not seasonally adjusted) between August 2015 and August 2016. Most of the job growth occurred in education and healthcare, trade, transportation and utilities, and professional services.

VACANCY & AVAILABILITY

Houston’s average retail vacancy rate increased 10 basis points from 5.7% in Q3 2016 to 5.8%. At the end of the fourth quarter, Houston had 16.9M SF of vacant retail space. Among the major property types, theme/entertainment retail has the lowest vacancy rate of 1.2%, followed by single-tenant at 2.5%, lifestyle centers at 3.2%, power centers at 4.2% and community centers at 5.4%. The highest vacancy rate is among outlet centers at 11.9%, and the largest amount of vacant space by square feet is among neighborhood centers.

Houston’s retail construction pipeline has 2.4M SF of projects underway of which 74.6% are pre-leased. The largest project under construction is the 374,000-SF Fairfield Town Center located on Hwy 290 and Cypresswood in the Cypress master-planned community development of Fairfield. The center is 100% pre-leased and is scheduled for completion in March 2017. Another large project under construction is the Paragon Outlets located on Hwy 59 South in Rosenberg. This project is scheduled for completion mid-2017 and some of the tenants that pre-leased. Future tenants include Nike Factory Store, Old Navy, Gap Outlet, Carter’s, Banana Republic Factory Store, Skechers, Brook’s Brothers Factory Store and Converse.

RENTAL RATE & VACANCY PERCENTAGE

ABSORPTION & DEMAND

Houston’s retail market posted 1.0M square feet of positive net absorption in the fourth quarter, bringing the total 2016 annual absorption to 4.3M square feet. About one-third of the Q4 2016 absorption occurred in Baybrook Mall’s new Power Center development. Tenants that moved into Baybrook include: The Container Store, REI Co-Op, Total Wine, and Dick’s 105,000-SF sporting goods store, Field & Stream and Golf Galaxy.

RENTAL RATES

According to CoStar, Houston’s citywide average quoted retail rental rate for all property types decreased marginally over the quarter from $14.89 per SF NNN the in third quarter to $14.87 per SF NNN. According to Colliers’ internal data, Class A in-line retail rental rates can vary widely from $20.00 to $85.00 per SF, depending on location and property type.

LEASING ACTIVITY

Houston’s retail leasing activity, which includes renewals, increased annually from 5.7M square feet in 2015 to 6.2M square feet in 2016.

Click here to download the report as a PDF.

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