HOUSTON – (Realty News Report) – Shopping centers are the strongest sector in Houston’s commercial real estate today and the trend is expected to continue for a while, says Danny Rice, president of Colliers Houston.
Houston ranked second behind only Dallas-Fort Worth in population growth last year. Relocations into Texas were the strongest in the nation. Home builders have responded with brisk construction in the suburbs.
But the old adage “retail follows rooftops” has been slow to materialize. Retail development has not kept pace with residential construction and population growth. So there’s a shortage of space for stores and restaurants.
“There’s just not enough supply, frankly, for the demand for retail space we seeing in the Houston market,” Rice said. “There’s only 650,000 SF of product under construction right now. For the size of the Houston market, you’d expect to see more than that.”
Firms that develop shopping centers are thwarted by today’s higher interest rates and higher construction costs.
“The cost of capital, the cost of getting a loan to go do retail construction is not very favorable,” Rice said at Colliers annual Houston Trends 2024 event last week
The retail vacancy rate in Houston is about 6.5 percent today, down about 20 basis points from a year ago, Colliers reports.
“Overall construction activity is probably not going to change substantially because of the cost of capital. But we do need more retail,” Rice said.
Optimism was hard to find in stores and restaurants when Covid hit a few years ago. The retail outlook was bleak.
“When the pandemic happened, we all remember, we all got locked into our houses. couldn’t go out to retail,” Rice said.
“But as soon as the handcuffs got taken off what did we want to do? We wanted to go back out. We wanted to be with our friends. We wanted to go and enjoy our time again.”
As Covid died out, the threat of retail Armageddon dissipated and the rebound is impressive.
“Retail has gone from what we thought was going to be devastation to what is now the most active and consistent market out there, “ Rice said.
The strength of Houston’s retail real estate has not been ignored by investors. While investment activity slowed substantially in every other commercial real estate sector last year, retail property investments increased. Colliers reported 245 Houston area retail properties were sold in 2023, a 6 percent increase over 230 sold in 2022.
In 2023, the Houston retail market was able to reduce its vacancy rate despite a rash of retail closures. Bed Bath & Beyond and Tuesday Morning closed a significant number of stores. Other retailers have been backfilling the empty slots.
Feb, 6, 2024 Realty News Report Copyright 2024
Photo credit: Ralph Bivins, Realty News Report, Copyright 2024
Caption: Danny Rice, president of Colliers Houston, speaks at the annual Colliers Trends outlook event.
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