Subscribe to Our Research Content

  • This field is for validation purposes and should be left unchanged.

Share

Download the PDF

 

The overall occupancy rate increased by 20 basis points quarter-over-quarter to 93.8%, though this figure represented a 70-basis-point decrease year-over-year.


EXECUTIVE SUMMARY

Occupancy increases to 93.8%
The overall occupancy rate increased by 20 basis points quarter-over-quarter to 93.8%, though this figure represented a 70-basis-point decrease year-over-year. Net absorption in the Houston retail market made a comeback to close the year out at 1.2 million sq. ft. in Q4 2020—up significantly from 189,000 sq. ft. in Q3 2020. Leasing activity—which is comprised of both new leases and renewals— included 1.7 million sq. ft. of signed deals during the fourth quarter, an equal amount to Q3 2020, and down 27% from this time last year. The retail market saw overall average asking rates increase by $0.09 per sq. ft. quarter-over-quarter to finish at $18.37 on a triple-net basis. A year ago, average rates were at $17.80, representing a 3.2% increase.

Houston economic indicators
The Federal Reserve Bank of Dallas reported earlier estimates for metro Houston’s pandemic job losses at 353,600 jobs from February to April 2020. However, revised data released in November show a net drop of 366,800 jobs. Since April, Houston has added back 147,500 jobs, as local employment data indicate improvement in October. Demand for petroleum made a significant recovery in 2020, bringing prices from negative territory to close to $50 a barrel. Some forecasters project oil will end 2021 at $60 a barrel, a level that would mean strong profits for many companies. With the pandemic heading towards an end, 2021 may to be a time of significant changes for the energy industry. Time will tell how the pandemic has changed the world and the consequences for the future.


BROKER’S PERSPECTIVE

Throughout much of Q2 and Q3, we saw several businesses shutter in the aftermath of the onset of the COVID-19 pandemic. The local businesses and smaller retailers that were hit the hardest were only able to weather the closure mandates for only so long—even with the PPP funding lifeline. Businesses that were limping along pre-COVID were propped up with the additional funding, but as time has progressed, these funds have gone dry. We are just now beginning to see the ripple effect of the pandemic and are seeing several spaces coming back to the market. I expect to see this wave continue through the end of the fourth quarter, and even into early 2021.

With that said, strong population growth, above-average job growth, and a gradually recovering energy industry have all underscored Houston’s solid fundamentals.

Additionally, national retailers have been more fortunate in some regards than smaller businesses, with several being able to ride out the storm—though not all have been immune to filing for bankruptcy or restructuring. Many of these tenants have paused their growth and are waiting, ultimately, to see how the beginning of 2021 will unfold prior to resuming activity.

Shaffer Braun

Shaffer Braun
Vice President
NAI Partners


MARKET OVERVIEW

Supply and demand
The aggregate effect of the net occupancy increase was 1.2 million sq. ft. of absorption for the quarter, lowering the vacancy rate to 6.2%, while delivering 518,000 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 4.2 million sq. ft. of new construction delivered in 2020, 68% has been leased, and of the 2.2 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.

Investment sales trends
Real Capital Analytics data reports quarterly retail sales volume for Q4 2020 in the Greater Houston area at $123.1 million, down compared to this time last year at $399.5 million. The primary capital composition for buyers in 2020 was made up of 71.5% private and 16.4% institutional investors. For sellers, the majority was 69.8% private and 19.8% user/other investors. A noteworthy transaction, local investment group RMM Properties LLC purchased a retail center in southeast Houston from an out-of-state seller, Community Commercial Properties II LLC. The 39,038-sq.-ft. Centre South is located at 11030 Kingspoint Road on 3.3 acres. The center’s occupancy was 79.2% at sale time, anchored by Sherwin Williams and Brown Sugar BBQ. During COVID-19’s early months, three new leases were signed, motivating the buyer.

Leasing activity
The volume of square footage signed during the fourth quarter—which is comprised of both new leases and renewals—was at 1.7 million sq. ft., equal to Q3 2020, although down from 2.3 million sq. ft. this time last year. One-third of the leasing activity took place in the Northwest submarket, followed by the Southwest submarket at 16%. Significant transactions signed in the fourth quarter include a 66,020-sq.-ft. renewal for 24-Hour Fitness at 21614 State Highway 249 in the Cypresswood Drive submarket; a new 41,167-sq.-ft. lease for Burlington at 4500 Dacoma St. in the Near Northwest Oaks submarket; and a new 36,998 sq. ft. deal signed with Ollie’s Bargain Outlet at 10701 Jones Road in the Jersey Village submarket.

Port of Houston #1 Port in U.S.
The Houston Ship Channel port complex and its public and private terminals, collectively known as the Port of Houston, is now the number one port in the United States in terms of total waterborne tonnage, newly released government statistics show. It is also ranked first for foreign waterborne tonnage and number of vessel transits. Nearly 285 million tons of cargo moved through the Port of Houston overall in 2019, which was about 47 million tons more than any other U.S. port and a 6% increase compared to the previous year.

Average asking rents
The Houston retail overall triple-net average rates are at $18.37 per sq. ft., an increase of $0.57 from $17.80 a year ago. Rent growth has varied across Houston’s submarkets, and with additional space likely coming available in Houston, tenants may have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. The Inner Loop ($28.93 PSF) and West ($20.89 PSF) submarkets continue from Q3 2020 to have the highest annual overall average rate, followed by the Southwest ($18.93 PSF) and Northwest ($18.08 PSF).

Houston housing market defies pandemic setting records in 2020
According to the Houston Association of Realtors, not even a devastating global pandemic could stop the Houston real estate market from breaking records as it crossed the finish line for the 2020 calendar year. Single-family home sales surpassed 2019’s record volume by more than 10%, even as the supply of homes declined to the lowest levels of all time. Sales of all property types for the year totaled 115,523. That represents an 11.6% increase over 2019 and marks only the second time in history that total property sales broke the 100,000 level. Total dollar volume for 2020 shot up 18.1% to a record-breaking $35.3 billion.


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

We Want to Hear From You

  • This field is for validation purposes and should be left unchanged.