Houston Retail Centers Immune to Woes in the Energy Industry

HOUSTON – (By Dale King) – To the casual onlooker, Houston’s retail market appeared to taking some majors hit in 2016. In just the first six months, 11 Sports Authority stores closed as part of a chain-wide shut-down. Four Fresh Market groceries in Houston were shuttered, as were two Walmarts, including a Supercenter on FM 1960, says a year-end report by Weitzman, a retail-focused commercial real estate services firm.

The losses darkened more than 860,000 square feet of former selling space just in those outlets. But overall, the Weitzman study says, Houston’s retail market has remained vigorous enough to overcome these deficits. In fact, for calendar-year 2016, the retail marketplace in the city and surroundings added some 3,415,000 square feet in new and expanded retail projects, an increase over the 2.7 million square feet tallied during 2015 and the most since the 4.9 million square feet added in 2008.

Commercial construction dropped sharply during the recession, with the low point being reached in 2011 when just 600,000 square feet came on line. Based on projects planned and now under way, the market in 2017 “should see construction remain active, but with lower total space,” says the document.

“The market remains healthy due to weaker, but positive, employment growth, as well as healthy population and residential growth,” says the report. “[Houston] is seeing more new retail construction than any other major metro in Texas, but the new space is reacting to increased density inside the Loop and strong suburban residential growth, which is creating new demand that is being met by a large number of new grocery stores.”

Weitzman says Houston’s retail sector was immune to woes in the energy industry. “The retail market to date has shown little to no ill effect from the oil market’s weakness,” it states.

Another sign of resiliency in Houston’s retail sector is its occupancy rate, which wrapped up 2016 at 95.5%, ranking as one of the strongest for the commercial market and finishing slightly below year-end 2015.

The Weitzman study offers some glowing projections for 2017, including the suggestion that the stores vacated last year “are likely to find new tenancy within a reasonable amount of time” because “the metro area has a strong track record of backfilling vacant existing space.”

Some examples:

Dick’s Sporting Goods stores opened new-construction locations as well as new stores in backfilled space at Deerbook Mall, First Colony Mall, The Woodlands Mall and Willowbrook Mall. The stores are among the national chain’s first six stores in the Houston market, all of which opened in 2016.
PGA Superstore opened in a 45,500-square-foot former Sports Authority at 19075 IH-45 North in The Woodlands Shopping Center.
Nordstrom Rack, which is backfilling a 27,000-square-foot former Sports Authority space in Portofino Shopping Center in The Woodlands area in Shenandoah, will open in 2018.
Whole Foods Market opened a 40,000-square-foot store at 11041 Westheimer Road in a former Randalls.
H-E-B opened a 62,000-square-foot store at the site of a vacant Kmart at Highway 146 near Palmer Highway in Texas City.
Fiesta Mart backfilled three vacant grocery store boxes at 2877 S. Richey and at 11035 East Freeway in Houston and at 5101 Avenue H in Rosenberg.
The report states restaurants remain “one of the Houston area’s most active categories for new locations.” New and expanding concepts include:
Fast-casual Malawi’s at 8731 Highway 6 in Sienna Plantation, with a second location opening soon in Central Square Midtown.
Tacodeli and Hopdoddy Burger Bar, favorites out of Austin, are opening new Houston locations.
Mellow Mushroom, a specialty pizza concept, opened its second Houston location at 1919 N. Shepherd in the Heights area. Also in the Heights is Dallas-based specialty pizza concept Cane Rosso at 1835 N. Shepherd;
Snooze, a Denver-based breakfast-and-brunch place, is opening several locations throughout the market and Maggiano’s, an upscale Italian chain, opened its third area location in Memorial City Mall.

The Weitzman report, prepared by a five-member team, says the retail market “is benefitting from the continued strength of the Houston economy, which, despite the loss of numerous energy-sector jobs, still reports an unemployment rate of only 4.9 percent as of November 2016, according to the Texas Workforce Commission.” That’s an improvement over the 5.8% rate posted last July.

While the ongoing oil price downturn has had few negative effects on the retail market, segments of the office and industrial markets have seen vacancy increases due to heavy concentration of “upstream” energy firms, particularly in the Downtown and Energy Corridor submarkets.

“Sectors like refineries and petrochemical plants that make up Houston’s ‘downstream’ market, however, continue to perform strongly [as they] benefit from lower oil prices. This is boosting the residential and retail markets in Houston areas like Baytown, Pasadena and Deer Park.”

“The strong economies in these areas are leading to higher residential and retail construction, and the jobs created by the downstream boom are seen as one key factor keeping the Houston market out of negative job-growth territory,” the report adds.

”Going into 2017, the retail sector appears poised to repeat the strong performance of 2016, based on steady leasing activity and new construction that remains primarily demand-based.”