Jan 27

Insight: Small businesses wanting to relocate in Houston are having a tough time. Here’s why.

For small businesses trying to relocate or expand in the Houston area, it’s a tough time to be looking.

Houston’s retail occupancy rates hit a six-year high in 2022 — 94.7 percent, according to commercial real estate firm CBRE. Within the Inner Loop, that number was even higher: just 4.2 percent of retail space was left vacant in the fourth quarter of last year. Meanwhile, average asking rents were at $26 per square foot, the highest they’d been since before the pandemic.

At the same time, construction has lagged. The amount of completed construction in Houston dropped from well over 4 million square feet in 2019 to just 2.2 million in 2022, according to CBRE’s data. Across the nation, the cost of construction has rapidly increased due to inflation and supply chain disruptions, though the prices of some staples like lumber began inching down in the last few months of 2022, according to a report by Rider Levett Bucknall, an international construction consulting firm.

The result: high prices, low availability and not much more on the way.

“Every landlord in the city has some percentage of their portfolio that they can never seem to lease. In this environment, over the past few years, we’ve seen much of that space get leased because there’s so little space added, and there’s so many retailers,” Jason Baker, principal at Baker Katz, told the Houston Chronicle in November.

Paying a higher premium for a good spot may be worth it for companies looking to take advantage of Houston’s strong retail demand, but for small businesses who lack the money and negotiating power of a bigger brand, it’s not quite so easy.

Still, many local retailers made moves in late 2022, oftentimes for factors outside their control. In December, Quality Feed & Garden Company moved to a new location within the Heights to make way for a new affordable housing development, while Beautique Day Spa & Salon in Rice Village found it difficult to find a new space after being told Rice University wanted to redevelop their building. Whether they’re leaving because of new development plans, a change in ownership, rising rent or even a combination of the three, small business owners unanimously agree it’s a tough time to try and find a new space.

Some surrounding suburbs like Tomball have made pitches for Houston businesses to seek new homes outside the city. Many have welcomed the new large retail developments in the past year, like the Plaza at Elyson, a new Target-anchored shopping center in Katy with 55,000 square feet of inline space, or a recently opened 21,500-square-foot retail center in Conroe featuring a Dutch Bros. Coffee.

But doing so would mean leaving established customer bases and oftentimes built-in foot traffic from the many colleges located in Houston or other destination like the Medical Center.

Even with the popularity of ecommerce, having a well-placed physical retail location has proved essential for businesses seeking to build lasting relationships with customers. But in Houston, those locations are getting increasingly hard to find, and to afford.

Megan Munce – Staff Writer
Houston Chronicle

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