Q1 2017 Houston Retail Research & Forecast Report

Houston’s retail market remains healthy moving into 2017

Houston’s retail market moves into 2017 with a healthy outlook. Not
much changed between quarters with vacancy rates ticking up only
20 basis points. Although Houston lost about 80,000 high income
jobs between 2014 and 2016, retail market indicators show no signs
of a struggling economy. Approximately 68% of the retail space under
construction at the close of Q1 2017 is pre-leased. Despite the 1.5M
SF of new inventory delivered in the first quarter, Houston’s average
retail vacancy rate remains low at 5.6%.

Houston’s retail leasing activity, which includes renewals, decreased
over the quarter from 1.6M SF in Q4 2016 to 1.1M SF in Q1 2017. Most
of the high-end class A space located inside the city limits is 90-100%
leased. It is hard to find good quality well located available space.
Most of the space that is available is in projects under construction
located in the suburbs near new master-planned residential
development, and will most likely be leased and occupied by discount
retailers, service businesses, restaurants, and entertainment concepts.

As large department stores continue to close down, these spaces are
being considered for other uses such as entertainment venues that
still add value to the shopping center. Another trend on the increase
are mixed-use developments planned where retail and entertainment
brands are built in a live, work, shop, and play environment. River
Oaks District and City Centre are success “place making” projects that
have broad appeal and seem to be insulated from online shopping.
Developers are clamoring for urban sites to develop retail in walkable
areas such as the Heights and Washington Ave where several
new projects are under construction or in the planning stage. To
offset declining in-store sales due to online shopping, HEB recently
announced plans to add curb side delivery at most of their Houston
stores.

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