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The overall occupancy rate was unchanged quarter-over-quarter at 93.7%, though this figure represented a 50-basis-point decrease year-over-year. Net absorption in the Houston retail market ended Q1 2021 at 924,000 sq. ft. Crunch Fitness


EXECUTIVE SUMMARY

OCCUPANCY REMAINS AT 93.7% The overall occupancy rate was unchanged quarter-over-quarter at 93.7%, though this figure represented a 50-basis-point decrease year-over-year. Net absorption in the Houston retail market ended Q1 2021 at 924,000 sq. ft.—down from 1.2 million sq. ft. year-over-year. Leasing activity—which is comprised of both new leases and renewals—included 1.5 million sq. ft. of signed deals during the first quarter, a little less quarter-over-quarter, from this time last year. The retail market saw overall average asking rates increase by $0.21 per sq. ft. quarter-over-quarter to finish at $18.56 on a triple-net basis. A year ago, average rates were at $17.70, representing a 4.9% increase. Crunch Fitness.

HOUSTON ECONOMIC INDICATORS During March, Houston added 34,200 jobs, well above its 20-year average of 13,100 jobs. This marks the fastest pace of monthly gains since October when Houston added nearly 36,000 jobs. As a result, Houston’s March unemployment rate edged downward to 8.0% after coming in at 8.4% in February. However, the local unemployment rate remains above the national average, which was 6.0% in March. The closing spot price for West Texas Intermediate averaged $59.04 per barrel in February 2021, up 16.8% from $50.54 for the same period in 2020. Baker Hughes reports 403 drilling rigs were working in the U.S. during the first week of March 2021. That’s down from 790 rigs the same week in March last year. The rig count has inched up steadily since bottoming at 244 in mid-August. However, it remains well below its recent peak of 1,083 in late December 2018.


MARKET OVERVIEW

SUPPLY AND DEMAND The aggregate effect of the net occupancy increase was 924,000 sq. ft. of absorption for the quarter, keeping the vacancy rate to 6.3%, while delivering 753,000 sq. ft. during the same time period. The Houston retail market realized quarterly negative net absorption only once in the past ten years during Q2 2020 at negative 780,000 sq. ft. Of the 753,000 sq. ft. of new construction delivered in Q1 2021, 63% has been leased, and of the 2.1 million sq. ft. still in the pipeline, 61% has been spoken for. New rooftops and jobs had driven demand for retail, which led to an occupancy rate at or above 94.0% for the last five years, prior to the coronavirus (COVID-19) pandemic. The retail job sectors in Houston that have performed well in recent years should continue to do so in 2021. This includes grocery, hardware and general merchandise stores. Clothing and traditional department stores will most likely continue to struggle. Crunch Fitness.

INVESTMENT SALES TRENDS Real Capital Analytics data reports quarterly retail sales volume for Q1 2021 in the Greater Houston area at $255.7 million, down compared to this time last year at $484.0 million. The primary capital composition for buyers so far in 2021 was made up of 91.0% private and 9.0% institutional investors. For sellers, the majority was 53.7% private and 43.0% institutional investors. In recent investment sales news, Kimco Realty Corp.’s multi-billion-dollar proposed acquisition of Houston-based Weingarten Realty Investors is expected to create a shopping center-focused powerhouse, a real estate investment trust that dominates high-growth markets in the Sun Belt and along the East and West coasts.

LEASING ACTIVITY The volume of square footage signed during the first quarter—which is comprised of both new leases and renewals—was at 1.5 million sq. ft. The North submarket saw 20% of total leasing activity take place, followed by the Northwest submarket at 18%. Significant transactions signed in the first quarter include a 77,967-sq.-ft. lease for AXXA Auto at 7200 Gulf Freeway in the Near Southeast submarket; a new 30,240-sq.- ft. lease for Crunch Fitness at 115201-15555 Southwest Freeway in the Stafford submarket; and a 26,418-sq.-ft. renewal signed with Barnes & Noble at 3003-3191 Holcombe Blvd. in the Inner Loop University submarket.

WINTER STORM TAKES TOLL ON PORT HOUSTON VOLUMES Container activity at Port Houston took a hit in February as a deadly ice storm shut port facilities for nearly a week, bringing cargo movements to a virtual standstill. The month’s winter storm and the impact of sub-freezing temperatures on both commerce and activity at Port Houston resulted in a tough month as vessel calls and terminal activities were suspended. Port Houston handled 198,763 twenty-foot equivalent units (TEUs) in February of 2021, compared to February of last year when 255,474 TEUs were handled. That brought container activity for the year to 453,802 TEUs, down 13% compared to the record 524,247 TEUs for the same period in 2020.

AVERAGE ASKING RENTS The Houston retail overall triple-net average rates are at $18.56 per sq. ft., an increase of 4.9% from $17.70 a year ago. Tenants may have more leverage with regards to negotiating rental rates, terms, tenant improvements and concessions. The Inner Loop ($29.22 PSF) and West ($20.20 PSF) submarkets continue to have the highest annual overall average rate, followed by the Southwest ($19.09 PSF) and South ($18.73 PSF).

HOUSTON SINGLE-FAMILY HOME SALES INCREASED FOR THE TENTH CONSECUTIVE MONTH According to the Houston Association of Realtors, single-family homes sales jumped 24.4% in March with 9,347 units sold versus 7,511 a year earlier. That marks the tenth straight positive month of sales. On a year-to-date basis, homes sales are running 16.9% ahead of 2020’s record pace. Selling a home took significantly less time than it did a year ago. Days on Market fell from 65 to 45. With fewer new listings entering the market, inventory registered a record low 1.4-months’ supply compared to 3.4 months a year earlier. Sales of all property types totaled 11,692 – up 31.5% from March 2020. Total dollar volume for the month shot up 55.8% to $4.0 billion. According to the “Housing Investor Mania 2.0” report from John Burns Real Estate Consulting, 24% of all homes recently purchased in the Houston market were bought by investors.


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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