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Backfill Bonanza: Retailers Making Moves on Second Generation Space

Uptown Park retail center, originally developed by Giorgio Borlenghi, is getting new tenants.

HOUSTON – (By Dale King, Realty News Report) – Normally, there’s very little good to say about a store – or, worse, a chain of them – going out of business.

Too many “Store Closing” signs are seen these days at malls and strip plazas, the result of outmoded marketing concepts, internal and/or external financial woes or, mainly, the growing popularity of purchasing goods and services on the internet.

Houston has discovered that using the “big boxes” abandoned by out-of-business retailers such as Toys “R” Us and Sears helps the Bayou City maintain a respectable occupancy rate while also creating new usages for structures that might otherwise become eyesores.

As of mid-year 2019, Houston’s retail market reports an occupancy rate of 94.0%, a healthy figure on par with numbers posted at year-end 2018, says a report from Weitzman, the Texas-based commercial real estate firm.

“In terms of new space in new and expanded projects, based on developments opened or announced to open in the second half of this year, the Houston-area retail market is on track to add some 1.3 million SF of retail space during calendar-year 2019,” the report predicts.

While leasing is steady, the delivery of new retail units has taken a dive, dropping to about half the 2.7 SF reported for 2018.

The report rationalizes the drop-off by saying: “The decline is not surprising, given that the burst of construction during the past few years generated by the expansion of the Grand Parkway is now nearing the end of its current cycle.”

“Overall, the retail occupancy rate remains among the healthiest recorded for the metro Houston retail market, which currently incorporates a total inventory of 160.5 million SF in retail projects of 25,000 SF or more.

Conservative construction levels, it adds, are helping to keep occupancy in the healthy mid-90% range over the long term, especially when compared to the low point of 86% a decade ago.

Occupancy is boosted by the market’s steady retail demand, which is absorbing vacancies in existing retail properties at a steady clip. Examples of key retail leasing in vacated merchandising spaces for 2019 include:

  • Hobby Lobby leased some 48,000 SF in Fairway Center at Beltway 8 and Fairmont Parkway in Pasadena. The lease backfilled a vacant Toys “R” Us location.

  • Megacenter Willowbrook, a 236,000 SF project is now underway at 7075 FM 1960 near Willowbrook Mall. When completed, it will result in a mix of uses in what used to be a Walmart Supercenter. It involves some 150,000 SF for fitness, entertainment, office, co-working and other uses.

  • Duluth Trading Co., a retailer of casual and work wear, opened its first Houston-area stores in early 2019 at Baybrook Mall in Friendswood and Katy Ranch Crossing in Katy.

  • North Cypress Landing, a 70,000 SF retail redevelopment transformed a vacant Randalls into a fully leased retail center. The largest tenant is Star Furniture & Mattresses, which opened in May 2019 in the center at 12312 Barker Cypress Road in Cypress.

  • Urban Air Adventure Park backfilled a former 100,000 SF Home Depot at 20251 Gulf Freeway in Webster and will open this year.

  • A mixed-use development of some 45,000 SF is planned for the site of a vacant Toys “R” Us building off IH-10, just east of Bunker Hill. Completion is set for the second half of 2019.

  • Velvet Taco announced plans to open in a freestanding building along Loop 610, south of Westheimer, that had been  occupied by an adult boutique, Zone d’Erotica.

  • Planet Fitness has opened in a former free-standing Palais Royal in  Pearland, at the northwest coner of Highway 288 and Shadow Creek Parkway.

  • Memorial City Mall announced plans to redevelop its vacant Sears store and other area to create public space and entertainment uses, among others.

Demand for Class A space, especially inside the Loop, can result in   small-shop rates in the best-located and newly constructed projects going as high $50 to $70 per SF per year in the strongest and most affluent retail submarkets.

These rates are average small-shop asking charges at specific centers, and can be notably higher or lower, depending on location, anchors, type of tenant, specific-space sizes and demographics.

Weitzman’s report says the outlook for the Houston-area retail market remains strong for the rest of 2019. “Leasing demand remains healthy, the market’s best-located projects are essentially fully leased, and new tenancy continues to backfill the large box vacancies left by Toy “R” US and others.”

“However,” the document warns, “vacancies will persist if projects have poorly located or outmoded space.  Overall, with the outlook for positive economic growth, we expect to see a continuation of Houston’s healthy retail market.”

July 11, 2019 Realty News Report Copyright 2019

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