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.

Q4_2017_Houston_Market Indicators

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.

Rental Rate & Vacancy Percentage

Q4_2017_Houston_Retail_RentalRate

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. Some of the larger tenants that moved during the fourth quarter are listed in the table below.

TENANT SF OCCUPIED  SUBMARKET

Conn’s

50,000

Stafford

GlowZone

37,500

Far Katy South

Pinstripes

33,830

Inner Loo River Oaks

Planet Fitness

30,208

Near Southeast

AMC

26,671

Montgomery County

                                   

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. Some of the tenants that signed leases during the fourth quarter are listed in the table below.

Q4 2017 Top Retail Lease Transactions

Building Name/Address

Submarket

SF

Tenant

Lease Date

Grand Parkway Marketplace II

Far North

34,000

LA Fitness

Oct-17

Steeplechase Plaza

Jersey Village

16,028

The Loken Group

Nov-17

Heights Center

Inner Loop Heights

12,265

Restaurant Depot

Oct-17

Highway 501 @ Bayside

NASA Clear Lake

9,026

Dollar General

Oct-17

Harwin Wholesale Center

Southwest

9,000

Sakta Int

Nov-17

9630 Mesa Dr

Near Northeast

8,320

Family Dollar

Dec-17

2230 Repsdorph Rd

NASA Clear Lake

7,800

AutoZone

Nov-17

Center at Baybrook

NASA Clear Lake

7,300

5.11 Tactical

Nov-17

Villagio Town Center

Far Katy South

6,843

Grazia Italian Kitchen

Dec-17

                                                                                                   

Q4 2017 Retail Market Statistical Summary 

Property type

Rentable Area

Direct Vacant SF

Direct Vacancy Rate

Sublet Vacant SF

Sublet Vacancy Rate

Total

Vacant SF

Total Vacancy Rate

4Q17 Net Absorption

Class a rental rates (in-line*)

Strip Centers (unanchored)

35,680,700

3,072,463

8.6%

30,886

0.1%

3,103,349

8.7%

140,594

$27.00-$45.00

Neighborhood Centers (one anchor)

71,941,811

6,876,632

9.6%

53,906

0.1%

6,930,538

9.6%

(121,597)

$28.00-$46.00

Community Centers (two anchors)

47,376,481

2,106,971

4.4%

43,128

0.1%

2,150,099

4.5%

234,844

$28.00-$45.00

Power Centers (three or > anchors)

28,015,153

1,151,587

4.1%

3,000

0.0%

1,154,587

4.1%

121,665

$28.00-$45.00

Lifestyle Centers

5,479,222

207,188

3.8%

2,700

0.0%

209,888

3.8%

141,330

$40.00-$85.00

Outlet Centers

1,330,725

150,456

11.3%

-

0.0%

150,456

11.3%

0

$20.00-$40.00

Theme/Entertainment

499,468

16,638

3.3%

-

0.0%

16,638

3.3%

(5,000)

$25.00-$35.00

Single-Tenant

72,269,796

1,181,419

1.6%

72,023

0.1%

1,253,442

1.7%

(270,065)

N/A

Malls

23,881,447

1,075,692

4.5%

-

0.0%

1,075,692

4.5%

(153,688)

N/A

Greater Houston

286,474,803

15,839,046

5.5%

72,023

0.0%

16,044,689

5.6%

88,083

 

                                                                                                                                                                                                                             
 
Q3 2017 Highlights