Jun 11

As business surges, new retailers struggle to find places to build, real estate exec says

With an economy that is beginning to recover as more people become vaccinated, retail is recovering, too, in nearly all sectors.

Jason Baker, principal at Houston-based commercial real estate firm Baker Katz, said he’s seeing retail clients go from furloughs to thousands of employees, from bankruptcy to new stores. That’s in part thanks to banks and landlords, he said, which in many cases have worked with retailers for rent relief or deferrals.

“I know there are cases of this where landlords were not helpful, but I know that there’s way more examples… where landlords and tenants work together,” Baker said.

During Covid-19, many companies with in-person business models, such as full-service restaurants and gyms, did fail, but Baker said those industries have been on the upswing more recently.

“I think that’s a positive sign. The only candidate of retail right now that I’m seeing that actually doesn’t appear to be looking to expand anytime soon is movie theaters. Part of that is because of streaming and all the changes that’s made for us as consumers,” Baker said.

Retailers that invested heavily in omnichannel commerce — which aims to integrate a customer’s experience on different online and in-person platforms — are seeing a return on their investment, Baker said. Retailers that pivoted quickly to services such as curbside and delivery are also growing despite the pandemic, he added.

Where retail sector problems arise is in construction. The construction industry is seeing huge cost increases in materials like steel, concrete and copper, and it’s becoming difficult to place retail in the trendiest areas of Houston.

“You’ll continue to see a lot of leasing activity (in the future), but by the fourth quarter of this year, there’s going to be a lot of retailers who want to expand here with nowhere to go,” Baker said. “I think you’ll see record occupancy on well-thought-out space. We’re seeing space that has sat vacant for years being leased.”

A lot of leasing activity is happening around the Grand Parkway, Baker said, with 50% or more of the deals he’s seeing taking place there.

Wherever it goes in Houston, the city’s becoming a desirable place for retailers.

“There is not a more desirable place for retailers to be in — I mean across every category of retail — than in the state of Texas,” Baker said. “The next several years for Houston are going to be really, really strong… from a retail standpoint.”

By Laura Gillespie
Houston Business Journal
Read the Original Article Here

Jun 2

Food & Beverage Industry Returns to Growth Mode in Houston

At a time when commercial real estate professionals see promising COVID-19 metrics and a better-than-expected vaccine rollout as signs that the end of the pandemic is near, it’s natural to examine where some of the most interesting and encouraging signs of recovery are already popping up.

Food and beverage (F&B) has certainly weathered the pandemic storm as well as any other retail sector. Understanding what comes next in F&B — what the next generation of successful concepts might look like and how the industry will likely evolve — begins with appreciating why the sector has remained relatively resilient during the pandemic. In telling that story, we can start to get a sense of what’s next for F&B concepts and real estate strategies, both in the Houston market and across the country.

F&B Ascends

It’s not surprising the F&B is having a moment. It was the hottest commercial real estate category before the pandemic, and it remains the most consistent industry bright spot today, though industrial players might disagree. Demand remained high throughout the pandemic, especially for quick-service and fast-casual concepts.

A handful of newer players were hit hard early during the COVID-19 outbreak, but the trend line of late has been positive, virtually across the board. Larger full-service operators were the hardest hit — and will be the slowest to recover — hampered as they were without drive-thrus and often lacking favorable setups for curbside pickup or outdoor dining.

One unique variable factoring prominently into restaurants’ pandemic performance is state-to-state variation in policy and political climate. Compared to some states, Texas shutdowns and closures did not last long.

There are brands whose store locations in states like Texas and Arizona essentially carried them through the pandemic — and some locations in other states are still closed. State-to-state politics and policies have not only had a big impact in the past, but they are also likely to shape the future as they will undoubtedly influence where many brands expand next.

Take It or Leave It

One of the defining questions shaping the post-pandemic F&B landscape centers on which structural and operational changes will be discarded and which will remain.

The QR codes on tables that have replaced menus in many restaurants aren’t going away anytime soon. Curbside service and other creative low-tough, high-convenience solutions that restaurants have implemented by necessity to get food out the door are also likely to stick around for the long haul.

As a general rule, it’s tough to turn the dial back on convenience and efficiency. While full-service concepts have generally been slower to evolve, many have recognized the need to do so, and, however uncomfortable the process may have been, have developed new processes (and sometimes even new design elements) that will serve them well going forward.

Spaces, Scrutiny

The expectation among Houston’s existing restauranteurs and those considering a presence in the city was that there would be considerable COVID-19 fallout, with numerous vacancies and new opportunities. That has not materialized, however. When quality vacancies do become available, the competition is fierce, reflecting pent-up demand in the marketplace. One recent vacancy in the city’s Heights neighborhood quickly garnered 10 serious proposals.

The good news for F&B operators is that the strength of the segment means that new concepts are being prioritized. Landlords are asking tougher questions and paying more attention to how effectively restaurants have adapted and modified their operations over the last year. It also bears watching to see if local operators that typically have lower cash reserves come under increased scrutiny or are at a disadvantage going forward against well-capitalized competitors.

Concepts, Creativity

Houston hasn’t just been one of the most resilient F&B markets during the last year, it’s also been a source of new and exciting F&B concepts — particularly among local operators and chef-driven concepts.

Chris Shepherd’s inspired Georgia James steakhouse concept, which turns some stuffy steakhouse tropes upside down, represents the kind of creativity and inspiration we’re seeing the market. The two biggest names in Houston barbecue, Luther’s (now Pappas) and Goode Co., have been joined by numerous new concepts in recent years, including The Pit Room, Truth BBQ, Killen’s and Feges. it’s an extraordinarily vibrant and innovative segment that could make Houston one of the hottest barbecue cities in the nation.

The city is also seeing aggressive proliferation of drive-thru-focused coffee brands like Dutch Bros. and Black Rock Coffee Bar. Nashville hot chicken is another busy segment, with names like The Cookshack and Dave’s Hot Chicken, which recently announced plans to open up to 26 locations in Houston and College Station, expanding aggressively in the city and its suburbs. Even in the full-service segment, it’s encouraging that traffic, volumes and occupancy are all trending up.

The unifying theme is creativity and fearlessness: a willingness to introduce new concepts, unique cooking styles or fresh takes on longstanding favorites. It’s unclear whether this is at least in part because of COVID, but it is clear that this approach will likely help define the post-pandemic F&B landscape.

Downsizing, Drive-Thrus, Digital

Mirroring national trends, the combination of a hard-hit downtown office market in Houston and high level of pre-pandemic F&B activity in the city center means that a post-pandemic downtown slowdown is inevitable.

We’ll also see continued adaptation. Shake Shack occupies valuable real estate in the market, but you have to wonder if the brand is looking to add drive-thrus to its standard store designs going forward. And with brands like Chipotle opening up digital lanes and Sweet Green leveraging technology in impressive ways, the acceleration of a burgeoning digital revolution is also an important F&B storyline to monitor.

Finally, we can expect to see more F&B concepts following the retail model and emphasizing experience. In other words, what we eat and where we eat will likely soon be joined by how we eat in determining what concepts thrive and what leases get signed in a post-pandemic future.

— This article originally appeared in the May 2021 issue of Texas Real Estate Business magazine

By Jason Baker
Principle, Baker Katz

Read the Article Here

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