Jan 7

Retail growth remains hot amid economic chill

The economy may be softening, but developers in 2016 are set to add more new space for Houstonians to buy groceries, sporting goods and sundries than in any year since the last recession.

Driving the growth is a local population that swelled by 100,000 annually during the recently ended energy boom. Twenty-eight new grocery stores will lead the coming expansion as the Houston area adds an expected 4.53 million square feet of shopping space, much of it near new single- and multifamily residential communities.

“In the case of retail, we’re kind of resilient in terms of meeting the needs after the fact,” said Ed Wulfe, a longtime Houston developer and chairman and CEO of Wulfe & Co. “Population is built, the demand is there and retailers are seeing that demand.”

Wulfe & Co.’s annual retail forecast finds Houston developers ready to complete and open 33 percent more space than they did in 2015.

The projections, based on cross-checked data developers and retailers presented to Wulfe & Co., might seem bullish – especially with crude oil showing no signs of moving above $40 a barrel for perhaps a year or more. But the numbers fall in line with usual patterns of the area’s growth and development, Wulfe and other retail watchers said.

“I think one of the things to consider is even when the economy flattens, that can result in people eating out less, which is good for food retailers,” said Scott McClelland, Houston division president for H-E-B, which plans to add five stores in the area during 2016.

The grocery giant, which the Wulfe report notes took the lead in local market share in 2015 at 25.9 percent, is expanding into Magnolia and Richmond, two cities in which it has not previously been. McClelland said the Houston area has “plenty of opportunities” for a greater presence.

Wulfe further attributed his positive forecast in part to a petrochemical boom on the region’s eastern side and to continued job growth in construction, health and activity tied to the Port of Houston.

Plus, the national economy continues to perform well and national companies with a local presence will benefit. Retailers will continue to seek Houston locations to sustain and increase their share of one of the nation’s largest retail markets.

With retail occupancy rates among the highest they’ve ever been, about 95 percent, new space must be created, he said.

Catch-up phase

The scheduled completion this spring of a 38-mile segment of Grand Parkway – the farthermost transportation link that will eventually ring metro Houston – opens up a corridor through Houston’s northern exurbs between U.S. 290 and U.S. 59, the Wulfe & Co. forecast states.

 

Jason Baker, a principal with real estate brokerage firm Baker Katz, said many of the retail developments are along the Grand Parkway.

Baker, whose firm specializes in retail, agreed the overall region is in a catch-up phase.

“From 2008 to 2013 or 2014, there really wasn’t any meaningful retail construction,” Baker said, adding that most construction projects today resulted from years of planning. “So, on a per capita basis, we’re catching up.”

Supermarkets again will make up the bulk, or about 39 percent, of new development. That’s not surprising, Wulfe said, as supermarkets typically are the first tenants to arrive in new residential areas.

Within the past decade, supermarkets have become sought-after anchors for new area retail centers, as they guarantee steady foot traffic and frequent visitors, Baker said.

In addition to the five H-E-B stores planned to open this year, Houston’s grocery market will add nine Aldis, four of Walmart’s smaller-concept neighborhood market stores and a Whole Foods Market in 2016, Wulfe said.

Wulfe & Co. vice president Scott Megahan said the company agreed not to disclose specifics about all of the developments included in the retail forecast.

Kroger is scheduled to open seven stores in Houston as part of its ongoing $500 million, three-year investment in the region, spokeswoman Kristal Howard said.

Other anchors and discount stores will make up most of the rest of new development.

Dick’s Sporting Goods is building six stores as it enters the Houston market for the first time, setting up direct competition with locally based Academy Sports and Outdoors, which will add two stores.

Construction also is in final stages for a 72,000-square-foot Cabela’s store in League City scheduled to open this spring.

Discounter Costco will open a 150,000-square-foot store, and Walmart will open another of its superstores, Wulfe said.

Job growth a catalyst

Houston indeed had a lot of “catching up to do” as the region added 680,000 jobs between 2003 and 2014, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s C.T. Bauer College of Business.

Gilmer said the region’s retail development, until now, has been “chasing rooftops.”

It was overbuilt leading up to the recession, he said, then slowed as the economy slowed while the city continued growing.

“I guess the question becomes, ‘How much do we need going forward?’ And that has to do with population growth,” Gilmer said.

The energy slump has slashed thousands of jobs, and 2016 might be the year other sectors feel the effects of that, he said.

Though the region is forecast to finish the year with a net gain of jobs, those additions will come at a far slower pace.

Word will get out about Houston not being as hot a job market as it once was, and population growth rates will decline, Gilmer said.

Wulfe said he is far from making any 2017 projections, although he sees a slower-growing market.

“The important thing is we have positive growth, ongoing and substantiated by population, jobs and a diversified economy,” Wulfe said.

Population projections show the region will add upward of 750,000 people over the next 10 years, and it’s those numbers and the demand they reflect that capture retailers’ attention.

“Retailers will continue to expand so long as the sales are there,” Baker said.