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HOUSTON | RETAIL
Q2 2018
Retail Trends
Commentary by Kelly Hutchinson, Senior Associate Market Indicators Annual Quarterly Quarterly
Relative to prior period Change Change Forecast*
Colliers First Quarter Retail Trends Report, stated that Houston’s
VACANCY
strong economy and steady population growth (2nd fastest growing
metropolitan area in the U.S.) are what have helped maintain NET ABSORPTION
healthy retail occupancy and rent growth.
NEW CONSTRUCTION
The Houston retail market remains relatively stable in the second UNDER CONSTRUCTION
quarter, however there is a definite tale of two markets within
the retail sector. Houston saw negative absorption in the second *Projected
quarter and a statistically significant increase in overall vacancy
for the first time in several years. The continued weakness in the
“big box” retail sector, led by the bankruptcy of Toys R Us (18
closed locations in the Houston MSA), created negative absorption
in Community (two anchors), Power (three or more big boxes)
and Malls (both traditional and outlet). Smaller, neighborhood and Summary Statistics
Houston Retail Market Q2 2017 Q1 2018 Q2 2018
unanchored strip centers on the other hand had healthy positive net
absorption. Vacancy Rate 5.3% 5.4% 5.6%
Despite this quarterly setback, Tex-X chief economist, Peter Muoio Net Absorption (SF)
(million square feet)
1.4M 0.7M -0.6M
ranks the city’s retail market the third strongest in the nation,
forecasting rents to rise and vacancy rates to fall across the metro New Construction (SF)
(million square feet)
1.8M 0.8M 0.9M
area by 2020 as demand will continue to outpace supply.
Under Construction (SF)
2.3M 2.9M 2.6M
Houston’s projected population and job growth are brisk tailwinds (million square feet)
for retail real estate and are expected to fuel the expansion of
Houston’s retail real estate market for years to come even as the Asking Rents
Per Square Foot Per Year
industry continues to retrench nationwide.
Average NNN $15.40 $15.35 $15.31
What notable factors are behind this long term positive trend?
Neighborhood Centers $14.73 $14.58 $14.53
Primarily, Houston, the most diverse city in the U.S. and second Strip Centers $18.32 $19.23 $19.51
fastest growing, is powered by a skilled and well-trained talent
base, with an excellent quality of life and low-cost of doing The above asking rents are an average of all property types and classes that are currently listed with
an asking rate. This average does not include properties that are fully leased or that do not list an
business. Forbes says Houston’s “secret sauce” is lower rents, easy asking rate. Please see page 2 of this report for an expanded discussion of retail rental rates.
>> IMPACT OF THE BABY BOOMERS – Houston has a relatively U.S. 1.6% 2.4M
smaller population of “Boomers” than most major cities, however
this group continues to drive the healthcare expansion (now a
significant retail use). Sales Activity
Source: Real Capital Analytics
>> ETHNIC AND RACIAL DIVERSITY – Houston has the 5th largest Q2 2018
immigrant population among the larger metros and is the most 50
NO. OF PROPERTIES:
diverse ethnic mix in the U.S. This population diversity opens
opportunity for niche retail and cross-cultural concept growth. TOTAL SF: 1.7M
will remain strong for the foreseeable future. For a more detailed 20.0%
0.0%
exploration of these topics, please check out our white paper at -20.0%
https://knowledge-leader.colliers.com/kelly-hutchinson/houston- -40.0%
-60.0%
retail-factors-to-success/. -80.0%
Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18
basis points annually from 5.3% in Q2 2017. At the end of the second 200
quarter, Houston had 15.8M SF of vacant retail space on the market. 150
Among the major property types, single-tenant retail had the lowest 100
9.0%
There is currently 2.6M SF of retail space under construction of which 8.0%
69% is pre-leased. The majority of the projects under construction
7.0%
are located in the outlying suburban submarkets adjacent to rapidly
6.0%
growing residential developments. The largest project under
5.0%
construction is the 240,000-SF Metropark Square located north of
Houston in the City of Shenandoah, Montgomery Co, TX. AMC and
4.0%
Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18
Dave and Busters are among the tenants in the new development.
Rental Rates
According to CoStar, our data provider, Houston’s citywide average quoted retail rental rate for all property types decreased slightly
between quarters from $15.35 per SF NNN in Q1 2018 to $15.31 per SF NNN. These average rental rates are typically much lower than
actual deal rates since they include all retail property types and classes, the majority of those properties are not well leased and are listed
with discounted asking rates. According to Colliers’ internal data, Class A in-line retail rental rates can vary widely from $30.00 to $85.00
per SF, depending on location and property type.
Deer Park Triangle NASA/Clear Lake 53,300 Joe V’s Smart Shop Apr-18
Four Corners Shopping Center Far South 12,500 Family Dollar Store Apr-18
Market Summary
Q2 2018 Retail Market Statistical Summary
DIRECT SUBLET SUBLET TOTAL
RENTABLE DIRECT TOTAL 2Q18 NET CLASS A RENTAL
PROPERTY TYPE VACANCY VACANT VACANCY VACANCY
AREA VACANT SF VACANT SF ABSORPTION RATES (IN-LINE*)
RATE SF RATE RATE
Strip Centers (unanchored) 35,834,161 2,895,662 8.1% 10,804 0.0% 2,906,466 8.1% 161,282 $27.00-$45.00
Neighborhood Centers (one anchor) 71,381,645 6,267,332 8.8% 76,390 0.1% 6,343,722 8.9% 268,202 $28.00-$46.00
Community Centers (two anchors) 47,614,673 2,317,313 4.9% 76,160 0.2% 2,393,473 5.0% (198,680) $28.00-$45.00
Power Centers (three or > anchors) 28,392,341 1,454,508 5.1% 11,625 0.0% 1,466,133 5.2% (331,271) $28.00-$45.00
Lifestyle Centers 6,052,121 145,457 2.4% - 0.0% 145,457 2.4% 67,473 $40.00-$85.00
Outlet Centers 1,330,725 165,860 12.5% - 0.0% 165,860 12.5% (131,624) $20.00-$40.00
Single-Tenant 72,744,169 1,306,412 1.8% 116,705 0.2% 1,423,117 2.0% (187,071) N/A
Malls 23,599,518 1,280,409 5.4% 12,397 0.1% 1,292,806 5.5% (203,456) N/A
GREATER HOUSTON 287,448,821 15,846,812 5.5% 304,081 0.1% 16,150,893 5.6% (551,266)
115.6M SF
15.3M SF