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Retail Centers are White Hot Investments as Occupancy Hits 10-Year High

HOUSTON – Prices for Houston retail properties jumped sharply in the last 12 months  – more than 20 percent in some cases, reports Deal Sikes & Associates, a Houston-based real estate valuation firm.

“Even though Houston has been one of the nation’s leaders in population growth for some time, the pace of shopping center construction has been very modest in recent years,” says Matthew Deal, principal of Deal Sikes. “Suburban Houston has been growing steadily. Home building has been strong and many areas are underserved, with a shortage of retail, restaurants and services.”

The Houston area led the nation in population growth last year, adding 157,000 new residents, according to the Greater Houston Partnership, and consumer demand for shopping opportunities is high. The U.S. Census Bureau estimated Houston’s population stood at 6.5 million in mid-2014, a gain of 570,000 people since the 2010 census.

“The population growth, along with new roadways and new housing, has retailers scrambling now to establish a position before their competitors get entrenched in Houston’s fast growing suburbs,” Deal said. “Prices for land at heavily traveled intersections have jumped sharply, more than 20 percent in some cases, as shopping center developers compete for great sites.”

Investors are finding the inventory of available retail properties is tight and prices are very strong, says Mark Sikes of the Deal Sikes firm.

“Investors are searching for opportunities to purchase retail centers in Houston and the inventory of available properties is tight,” said Sikes. “Shopping centers are gaining favor with investors. Current pricing for existing retail centers is very impressive.”

Houston’s retail occupancy rate is over 94 percent, the highest in over 10 years, reports Lisa Bridges, director of research for Colliers International in Houston. Colliers reports only 2 million square feet of new space is in the construction pipeline.

So the pros don’t expect to see a glut of retail any time soon, although a lot of new retail projects have been proposed.

The new retail space in the pipeline is 78 percent preleased, Colliers said.

During the second quarter, 933,719 square feet of Houston’s retail inventory was absorbed, Colliers reported.

Houston’s average retail vacancy rate decreased slightly from 6.2 percent a year ago to 5.8 percent in the second quarter.

The citywide average quoted retail rental rate increased to $15.30 per square feet, NNN. That’s up 2.3 percent from $14.96 per square feet a year ago.

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