HOUSTON – (By Dale King, Realty News Report) – Houston’s retail market racked up some pretty impressive numbers in the final quarter of 2018. But even by then, dark clouds were beginning to gather on the horizon.
The Bayou City’s “retail sector ended 2018 strong with increased activity and a low vacancy rate of 5.3%,” says a report compiled by Colliers International Group, Inc., a global real estate services and investment management company.
But as 2019 approached, not everyone was popping champagne corks and inflating celebratory balloons. “Colliers retail experts started to observe some owners reducing asking rental rates from their recent peaks in order to keep spaces occupied, and activity levels also seem to be slowing down,” says the document prepared by Lisa Bridges, director of Market Research-Houston, with commentary by Marshall S. Clinkscales, Jr., executive vice president.
Houston-based Wulfe & Co., Inc., a commercial retail real estate company, added fuel to the slowdown jitters. The firm predicts that Greater Houston will build and open 2.5 million SF of retail space in 2019, a 24% decrease from 2018.
In fact, according to Wulfe’s charts, 2019 will be the fourth year in a row that retail square footage will drop, from a high of 4.51 million SF in 2016 to 4.23 million in 2017 and 3.32 million in 2018. The amount of retail space had been on a general, though unhurried, uptick since 2010 after a banner year in 2009 when the annual tally of retail square footage came in at just over 3 million.
Regarding the recent Texas International Council of Shopping Centers(ICSC)meeting in Fort Worth, Clinkscales commented: “Many brokers and owners stated that they noted a definite flattening out which would point to the retail sector peaking in its growth cycle. The consensus was that the pace of deal flow is slowing.”
Stats for the Houston shopping center and strip plaza sector have been dropping slightly over the past few years. Asking rents for neighborhood centers in 2017 averaged $15.12; in 2018, $14.60 and for 2019, $14.98, the report says. Asking rents for strip centers averaged $18.27 in 2017, $19.52 in 2018 and $19.54 for 2019.
The document also says the total number of square feet of new construction and properties under construction slipped each year from 2017 to 2019.
By the end of 2018, Houston had 15.3 million SF of vacant retail space on the market. Among major property types, single-tenant retail had the lowest vacancy rate, 1.6%, followed by lifestyle centers at 1.9%, theme/entertainment at 2.5% and malls at 4.7%. Outlet centers have the highest vacancy rate at 10.3%, followed by neighborhood centers with 8.3% and strip centers at 7.7%.
“So,” asked Clinkscales, “what does this say about the future? Every boom will experience a peak in activity and price. This is where Houston’s retail cycle is currently positioned – healthy, but flattening.”
He pointed out that the city’s retail market “is not in for a ‘bust,’ but existing retail centers need to be leased before developers start new speculative projects. Pre-leased or anchored centers in quality locations will do well, but we don’t see it being a good idea to put smaller, unanchored strip centers just because you can.”
“Colliers’ retail experts continue to hear that grocery stores, big boxes and restaurants are becoming much more selective in choosing their sites. It is taking longer to get corporate approvals in selecting their sites.”
The report says: “Online shopping, store closings and downsizing will continue to affect the market in the near future. All of this will add up to a slower-paced retail market.” But it adds: “Houston has a strong, vibrant retail market and should remain healthy for the foreseeable future.”
Houston does have a number of projects in the works, mainly in suburban submarkets adjacent to rapidly growing residential developments. The largest project, says the report, is the 533,200 SF Waterview Town Center in southwest Houston, in Fort Bend County. Academy, Studio Mobile Grill, LA Fitness and At Home are among tenants signed up for the fully pre-leased center.
