Retailers continue to expand in metro Houston, despite economic headwinds from the oil bust.
Two years of a prolonged dip in energy prices have caused some areas of weakness in housing and auto sales, but retailers leased a net increase of 1.5 million square feet between April and June – the most in any quarter since fall 2007, just prior to the recession, according to commercial real estate firm CBRE.
The quarterly figure is more than the net amounts for all of 2010, 2011 and 2012 combined. The occupancy rate rose to 94.2 percent, which is a multi-year high, said Robert C. Kramp, research and analysis director for CBRE.
Kramp said retail continues to catch up with the area’s rapid population growth of the past several years.
“We’ve added all these new residents, the overall consumer is healthy and there’s a conservative construction pipeline,” Kramp said.
Between July 2014 and July 2015, the latest numbers available, Houston added 159,000 residents. Though that in-migration likely has slowed as energy prices remain depressed, construction has revved up since so little retail space was added during the recession.
Developers remain conservative, Kramp said. About 3 million square feet of space is under construction, which is equivalent to only 1 percent of the region’s total retail space, he added. As further testament of retailers’ strong demand, about 85 percent of that new space is pre-leased, according to CBRE.
“It just speaks to the health of the retail market in Houston,” said Kenneth Katz, a principal with real estate brokerage firm Baker Katz. “I think the majority of the people in this city would have never predicted this would have gone on as long as it has and the retail market would be as strong and resilient as it is.”
According to CRBE’s analysis, the growth has been strongest in far west, northwest and northeast parts of the metro area. There has been “healthy” consumer spending in certain suburban areas, Kramp said.
“Retail also follows new home construction,” said Patrick Jankowski, senior vice president of research with the Greater Houston Partnership. “Grocers, restaurants, clothing stores position themselves to capture these new consumers. That’s the pocket that retail in the suburbs fit into.”
Leading the charge is the aggressive competition among grocery retailers. Fresh Market pulled out of Houston in May, but its departure was more than offset by new quarterly additions. Examples include a 187,000-square-foot Wal-Mart in Spring, a Kroger Marketplace anchoring the 140,000-square-foot Woodshore Marketplace development in Clute and a 40,000-square-foot Whole Foods Market in Houston’s Westchase District.
Grocery stores account for 38 percent of new construction, with high demand among restaurants and fitness concepts and entertainment venues, CBRE’s analysis states.
The Grand Parkway also has been a catalyst, Katz said.
The newest corridor to open to traffic, between U.S. 290 and U.S. 59 in the northwest and northern metro area, has established new intersections for retail. Several developments have been announced for the artery, including The Market at Springwoods Village at Grand Parkway and Holzwarth Road to be anchored by a Kroger, and the Target-anchored Grand Parkway Marketplace near Kuykendahl Road, among others.
“In a competitive retail market, they have to plant their flags along the parkway to ensure they develop,” said Ed Wulfe, chairman and CEO of Wulfe & Co.
In addition to 3 million square feet currently under construction, another 1.9 million is expected by the end of the year.
CBRE’s assessment jibes with a forecast issued at the beginning of the year by Wulfe & Associates, which called for more than 4.5 million square feet of new retail space by the end of 2016, including 28 new grocery stores.
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