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Houston Retail Construction Reaches Strongest Pace Since 2008

Ed Wulfe

Ed Wulfe

HOUSTON – Facing a shortage of retail space, shopping center construction is up sharply in Houston with the 2016 construction pace reaching its highest level since 2008, according to the Wulfe & Co. Annual Retail Survey.

Wulfe reports 4.53 million square feet of new retail shopping center space will be built and opened in the greater Houston area in 2016, a 33 percent increase over the 3.4 million square feet of new space in 2015.

Houston has led the nation in housing starts in recent year while the population has increased by more 100,000 per year.

New retail development has not kept pace with the city’s growth and a shortage of retail space has developed.

“Because of the moderate amount of new retail construction in Houston over the past 6-7 years, there is now a shortage of retail space. New construction has been dominated by supermarkets, discount stores and the big boxes,” says Ed Wulfe, CEO of Wulfe & Co. “Many retailers want locations in key areas and it’s difficult to find locations for the expanding conventional retailer or restaurant.”

Occupancy rates have reached a record high of 95 percent in Houston area retail centers.

“Limited space availability means increased competition for space and rising rents. Retail rents in Houston have increased at least 5 percent in 2015,” Wulfe told Realty News Report.

The majority of new retail space is either owned or leased by the individual stores, like many supermarkets, discount stores and power retailers, and there will only be approximately thirteen percent of speculative small store space available for lease. Many of the new developments for the coming year are either already under construction, have fully executed leases with financially strong national retailers or are being developed by major development firms in response to the vibrant retail real estate marketplace.

Supermarkets will dominate new retail construction and represent 39 percent of 2016’s projected growth with 28 new stores planned.

Kroger will open nine of their 123,000 sf stores, HEB will open five of its 100,000 sf prototype markets, Walmart will open four of their neighborhood supermarkets, Whole Foods will open one, and recent newcomer ALDI will add nine of their smaller 18,000 sf stores to the market.

According to supermarket share figures from The Shelby Report’s East Texas/La. Division, HEB has taken over the lead of the grocery market with its 91 stores and 25.9 percent share; Walmart has 92 stores and 25.2 percent; and Kroger with its 111 stores has 23.6 percent in the very competitive environment.

Wulfe & Co.’s Annual Survey also indicated in addition to the substantial amount of new supermarket space to be added in 2016, Dick’s Sporting Goods, a national sporting goods chain is entering the Houston market with the addition of six new stores of  50-100,000 sf; Academy will add two new 63,000 sf stores and Cabella’s will open one 72,000 sf store. In addition Costco will open a new 150,000 sf store and Walmart will open another 180,000 sf Walmart Superstore.

Six new theaters will open this year; three new 24 Hour Fitness centers and one LA Fitness facility.

Much of this activity serves suburban markets to the North, Northwest, West and Southwest, with many new major retail projects capitalizing on the Grand Parkway’s evolution. There are also six mall expansions planned and several mixed use developments within the urban core.

Jan. 8, 2016

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