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Houston Retail Q3 Hero

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Houston Retail continues its strong performance.


EXECUTIVE SUMMARY

RESILIENT HOUSTON RETAIL SECTOR
The retail market in Houston has been positive so far in 2021. Vacancy is tightening, leasing activity has picked up, and rent growth is improving. In the face of store closures and bankruptcies, combined with a significant amount of development over the past year, the market has continuously recorded positive net absorption. Vacancies have tightened to 5.8%, levels not seen since the start of the pandemic in Q1 2020. Leasing for the quarter was again robust, with Houston recording 2.1 million sq. ft. of activity, just above the five-year quarterly average of 2.0 million sq. ft. With 3.3 million sq. ft. delivered since the beginning of the year, 3.3 million sq. ft. under construction, and another 5.3 million sq. ft. planned through 2022, the demand for retail real estate may continue to outpace supply.

STRONG HOUSTON RECOVERY ON PACE TO END 2021
The Federal Reserve Bank of Dallas reported that high-frequency data such as mobility, OpenTable restaurant demand, job postings and monthly employment were modestly impacted by the Delta wave’s disruption on economic activity in August and early September. The impact was centered on the leisure and hospitality sector—though that sector is also plagued by challenging labor market conditions. The sectors most impacted by social distancing early in the pandemic are now at or near full recovery. Restaurants and bars have recouped 100% of their losses, retail 90%, other services (i.e., personal services), 80%.

 

Houston Retail Data Graphs

 


MARKET OVERVIEW

DEMAND OUTPACED SUPPLY IN Q3
The aggregate effect of the net occupancy increase was 1.3 million sq. ft. of absorption for the quarter, lowering the vacancy rate to 5.8%, while delivering only 272,000 sq. ft. during the same time period, giving the market some time in which to recover. The Houston retail market has not realized quarterly overall negative net absorption in the past 15 years, or 59 consecutive quarters.

INVESTMENT SALES TRENDS
Real Capital Analytics data reports the cumulative monthly sales value in the greater Houston area at $1.5 billion as of September 30, 2021, up significantly compared to this time last year at $547.7 million. The primary capital composition for buyers so far in 2021 was made up of 50.5% private and 39.7% REIT/listed investors. For sellers, the majority was 44.5% private and 41.6% REIT/listed investors. Among recent noteworthy transactions include a joint venture between J. Beard Real Estate Co. and Outlier Capital LLC purchasing Tomball Town Center, a 141,450-sq.-ft. Kroger-anchored shopping center located in the Tomball submarket of Houston. Tomball Town Center was 98% leased at the time of sale by InvenTrust Properties.

ASKING RENTS REMAIN ELEVATED
The Houston retail overall triple-net average rates are at $19.02 per sq. ft., an increase of $0.79 from $18.23 a year ago. The Inner Loop has the highest rent of all submarkets in the Houston metro at $30.08 per sq. ft. with a vacancy rate of 4.9%, followed by the West submarket at $19.90 per sq. ft. with a vacancy rate of 5.8%. The overall Houston retail vacancy rate is 5.8%. According to CoStar, neighborhood centers, which usually feature more essential businesses, have fared better during the pandemic, and have experienced the strongest growth of late, seeing rents increase by 3.2% over the past year. Meanwhile, average asking rents in malls have grown by about 2.9% over the same time.

STEADY LEASING ACTIVITY IN Q3
The volume of square footage signed during the third quarter—which is comprised of both new leases and renewals—was at 2.1 million sq. ft., up 22% from last quarter, and 16% from this time last year. The largest amount of square feet leased took place in the Northwest submarket at 23%, followed by the North submarket at 18%. Significant transactions signed in the third quarter included a 56,084-sq.-ft. lease for Hobby Lobby in North Oaks Shopping Center in the Willowbrook submarket; a new 30,539-sq.-ft. lease for Planet Fitness in Deerbrook Crossing in the Lake Houston submarket; and a new 29,000-sq.-ft. deal signed with Tractor Supply in Deer Park Triangle in the NASA/Clear Lake submarket.

MANVEL TOWN CENTER
Weitzman and H-E-B broke ground in Q3 on the first phase of Manvel Town Center, which upon completion will be one of the largest open-area retail projects in Houston’s history. Located at the intersection of SH 288 and SH 6 on a 273-acre site, the project will have more than one million sq. ft. of retail, hospitality, entertainment, medical, and office space. H-E-B will anchor the project with a 100,000-sq.-ft. store with a car wash and fuel station. The first phase will be complete in late summer 2022.

ON TRACK FOR ANOTHER RECORD YEAR OF HOME SALES
According to the Houston Association of Realtors, in spite of persistently low inventory, buyers kept the Houston real estate market bustling again in September, aligning it for a record finish by the end of 2021. Single-family homes sales rose 1.5% compared to last September. On a year-to-date basis, local home sales are 15.3% ahead of 2020’s record pace and up 21.6% when compared to 2019. Homes priced from $1 million and above—led the way in sales with a 34.6% year-over-year increase while the average price rose 13.4% to $372,408. For all property types (single-family, duplexes, townhomes, condos, and residential lots), realtors sold 11,285 units in September 2021, up 1.6% from September 2020. The 12-month total for all property types was 131,085 homes, up 20.9% from the same period in 2020.


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

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