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Finally, Eastside is Hot Retail Center Market: Q&A with Marshall Clinkscales

Marshall Clinkscales

Marshall Clinkscales

Like the late comedian Rodney Dangerfield, the retail sector in southeast Houston gets no respect.  But that is definitely changing as local and national merchants as well as restaurateurs have suddenly ‘discovered’ the Pasadena, La Porte and Deer Park areas. Houston’s eastside retail market is experiencing tremendous growth thanks to the expansion of chemical companies who are enjoying today’s super low priced natural gas as feedstock. To find out more about southeast Harris County retail market, Realty News Report talked to Marshall S. Clinkscales, director in the Houston office of global brokerage firm Colliers International. A veteran of the market for more than four decades, Clinkscales has extensive experience in retail site selection and has represented national clients including Burger King, Golden Corral Restaurants, Firestone, CVS Pharmacy, Walgreen’s, HEB Grocery Stores and Family Dollar Stores. Prior to joining Colliers, Marshall owned and operated MSC Properties, Inc., a Houston-based commercial real estate company established in 1981. He served as president of the Pasadena Chamber of Commerce in 1981.

Realty News Report: There is a significant amount of growth with new and expanded Houston area chemical plants, with over $30 billion proposed or under development. The Dutch firm LyondellBasell just announced $4 billion in Houston project, including the plans to build the world’s largest propylene oxide plant In Pasadena. Can you explain what’s going on in the east/southeast real estate markets now?

Clinkscales:The Houston Ship Channel, contrary to the general perception, is not all about oil. Yes, a good portion of its economy is about energy, but the east side also has a vigorous and healthy economy from refineries, chemicals, and related industries. There are a large number of new projects coming online over the next few years and an increasing number of companies that are opening operations in the area. That translates into job creation along the Ship Channel and in Pasadena, La Porte, Baytown and Deer Park. Energy accounts for a lot of the activity but that’s only part of it. The outlook for southeast Houston is extremely healthy and very active because it’s a good place to live and work. I started in Pasadena in 1972 with a land syndication group and have followed the southeast Harris County market ever since. The area’s growth always has been slow and steady. Plus, southeast Houston’s real estate has never been overdeveloped. The area never went through an overbuilt situation either in office or retail or industrial like the rest of Houston has. It’s always been a strong and steady market and that’s what retailers like and are constantly discovering.

Realty News Report: What about retail development in the east side? What kind of activity is occurring?

Clinkscales: It always starts with jobs. In Houston, when oil was $100 a barrel, the entire area had had jobs running out the ears. Developers and retailers naturally looked to the more glamorous areas on the west and north sides of Houston, but now, the eastside has been discovered.   We have to remember that developers don’t drive the retail boat, retailers and users do. We are just along for the ride. There is so much activity; it’s making some dramatic changes in Pasadena. I think the turning point can be traced to the developments done by Alan Hassenflu, CEO of Fidelis Realty Partners, on the southeast and northeast corners of Fairmont Parkway and E Beltway 8. The tenants opened to strong sales and continued to perform extremely well. Word began to spread about retail opportunities here. The sales were evidence of the strong spendable income in the southeast.  The area had been underserved for so long that the people really responded to these developments.  As others came, rents and land values increased and the story began to spread.

Realty News Report: What about restaurants?

Clinkscales: Right now, there is strong demand in the area for restaurants. Almost every day, I get a call from someone representing a restaurant that is looking at the southeast Houston market. We’ve been working particularly hard to attract eateries to a piece of land on the south-east corner of Beltway 8 and Spencer and have signed up Cheddar’s Scratch Kitchen and Bubba’s 33. We’ve also sold a pad to CVS and a pad to a well-known bank, which doesn’t want to be named yet.  Also, at the corner of Beltway 8 and Vista, eight acres is under contract to a restaurant developer who usually puts two to three restaurants on one site. As you know, activity creates demand and demands creates price, and that’s playing out in southeast Harris Country. The market has been there for decades, but it’s like it’s just been discovered. Retailers are finally noticing it’s a really good place to do some very good business.

Realty News Report: Explain the importance of the big expansion at Baybrook Mall.

Clinkscales: There is a lot of retail growth at Baybrook Mall in Clear Lake, I-45 and Bay Area Boulevard, where General Growth is adding over 500,000 square feet of space. It’s going to be an outdoor life style center, not a covered mall, and they’ve got some great tenants coming there. It’s going to be a real “activity creator,” something that’s going to have a big impact in other areas. There are also several new retail and mixed-use developments in Baytown and League City. La Porte is aggressively pursuing new retail in the city.

Realty News Report: Are residential developers buying land or looking for east side sites?

Clinkscales: We’re seeing new home construction and residential activity on the eastside of Clear Lake along Clear Lake City Boulevard east of Space Center Blvd. and in League City along FM 646, east of I-45. We’re also noticing new residential activity in Baytown on the north and the east side of town. The reason for this residential activity is that there are jobs in the area, good schools, and strong community services.

Realty News Report: What about the perceptions of the east side? Developers have traditionally focused on Houston’s north, southeast and southwest sectors. Why has the east side been passed over so many times in the past and is that changing?

Clinkscales: That’s changed and it’s related to spendable income.  On the eastside, the average income per household might not be as high as it is in, say, The Woodlands, Katy or Sugarland, but the spendable income is really strong. I’ve heard developers say Pasadena has the second highest spendable income in the area, only behind the Memorial Villages.  Here we have a lot of dual income households owned by people who live within their means, and they are not house poor.  They appreciate the new retail in their area, and they do business there.  Also, the developments are nice with good landscaping packages and quality buildings.

Realty News Report: You recently handled the sale of 126 acres at the key intersection of Beltway 8 and Fairmont Parkway. What’s happening at that intersection?

Clinkscales: It was an interesting, complicated transaction that was done in several phases. A client bought the property, then sold some of the land to Hassenflu, who developed it with big and junior boxes along with pad sites for restaurants and smaller retail. There is a long list of restaurants we’ve talked to about locating there.  Now, out of those 126 acres there are only about 10.5 acres left along the East Belt south of Spencer and 18 acres remaining at Vista and the Beltway. Eight acres of that 18 is currently under contract to a developer who plans to put two or three well-known restaurants on the tract.

Realty News Report: In July, Fidelis Realty Partners bought the 1.2 million square foot San Jacinto Mall on Interstate 10 and Garth Road in Baytown for a major redevelopment. What are your thoughts?

Clinkscales: Fidelis buying San Jacinto Mall is, in my opinion, the best thing to happen to that site and for the city. San Jacinto Mall has not been successful as an enclosed mall. It has been just sitting there, deteriorating, for years. It’s at the southwest corner of I-10 and Garth Road, a great location. Fidelis plans to scrape the Mall and start all over to create a power center. I understand that the first pad on Garth Road is going to be a HEB grocery store.  Fidelis is also bringing junior and big box retailers into the site.  A 20-acre tract to the west of the mall just went under contract to another developer who will bring restaurants and mixed use to that site.   There are other developments going on the east side of Baytown at this time. Activity is good.

Realty News Report: What about the Clear Lake/NASA area on the southeast side of Houston?  What do you see unfolding down there?

Clinkscales: The biggest project is the lifestyle center being added to Baybrook Mall. On the east side of Clear Lake, there is a new HEB-anchored center being built on Clear Lake City Boulevard. There is new retail going in on the south side of Clear Lake and in League City along I-45 at FM 646 and 99. Occupancies are very good in the area. It is difficult to find vacant spaces.

Realty News Report: Looking ahead, how are you feeling about 2016? What’s your outlook for the overall Houston commercial real estate next year?

Clinkscales: Houston is not going to create 100,000 jobs this year like the area did in 2014. For 2016, job creation is going to be relatively low, but it won’t be negative, and that’s important. It’s just that we’ve gone from a sensational job-creating economy to one that’s ‘normal’ — not spectacular. We’re going to have to wait for the oversupply in the oil industry to straighten itself out before we see a major change.  It’s been a while since I’ve heard a politician worrying about the U.S. dependence on foreign oil. America is a major producer of oil now; the problem is just there is too much out there. It’s the effect of supply and demand. Once we learned to do fracking, it changed the equation. Office in Houston has been overbuilt and we have 7 ½ million square feet of sublease on the market. That’s a lot. We’ve done this before, but fortunately, this time it is not associated with a general recession like years past. It’s a pullback, a pause in the oil industry.  I see a steady, not spectacular, 2016 where we deal with projects on the ground and those just coming on line.

Realty News Report: Any other comments?

Clinkscales: Retailers tend to follow each other. It’s hard to get the first one to an area but once you get that initial retailer, other developers notice and buy land. There were a number of pioneers in the area. John O. Harris set the tone early with quality projects.  Hassenflu and Lynn Davis have had a major impact on retail on the eastside as have Gulf Coast Commercial and David Lay at Beltway and Crenshaw, Frank Liu on Fairmont Parkway, and Andy Billup at Beltway and Preston. Without them and others, we wouldn’t be seeing so much activity today.

I went to work for John O. Harris in 1976. He owned a lot of property in the Fairmont Parkway area and he wanted to do shopping centers and offices. But it was difficult to even get people to the area to look, and retail attracted only smaller  mom and pop businesses. After Hassenflu started his projects at Fairmont and the Beltway, word spread, which led to quite a boom in the Pasadena, Deer Park and LaPorte areas. Today the eastside has been validated as a great place for retailers to do excellent business. In the past, residents thought they had to travel to the westside or go out along Westheimer, or down to Sugarland, but now they can stay and shop on the eastside. It’s been a long time coming but it’s a great transformation.

Realty News Report is a Texas-based publication led by Houston journalist Ralph Bivins.

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