After Slow Start, Construction Moves Again

Kramp says Houston’s retail sector is seeing vacancy dwindle to the tight single digits.

HOUSTON—While grocery-anchored centers have dominated the recent construction pipeline, more mixed-use, neighborhood and freestanding retail projects fill out the retail pipeline opening up inventory for big box and junior anchors to expand within the Houston market, according to a first quarter retail report by CBRE Research . Still, construction continues to lag the pace set in the last construction cycle of 2006 and 2007 when 16 million square feet delivered. After a slow start to the construction cycle, developments are finally moving forward. Currently 2.2 million square feet of retail space is under construction, of which 35% is grocery-anchored centers. A full construction pipeline is needed as limited supply continues to constrain leasing. Class-A space is 97.7% occupied and tenants looking for quality space will likely turn to new developments underway. First quarter completions were 96.4% occupied upon delivery. Robert Kramp , director of research and analysis for the CBRE Texas/Oklahoma region tells GlobeSt.com: “With record population gains and a disciplined construction pipeline, Houston’s retail sector is seeing vacancy dwindle to the tight single digits and is expected to maintain this trend even as several large grocery-anchored centers come online in the coming quarters.” Grocery has dominated leasing and construction due the aggressive expansion plans of Kroger and H-E-B as well as national big-box grocers and small specialty grocers such as Trader Joe’s, Sprouts and Aldi .  Yet, grocery-anchored developments are losing ground to neighborhood centers and freestanding retail project including Rooms-to-Go and Showbiz Cinemas . Houston absorbed 461,000 square feet in first quarter with the strongest activity in the Far North and Far Northwest submarkets. Demand continues to outpace supply, pushing occupancy up to 93.8% with class A product higher yet at 97.7%. There is still some concern that slowing national retail activity coupled with a more conservative consumer could postpone a handful of expansions. Sales tax revenues have been on the decline for several quarters across the Houston metro and local economists warn that retail sales could see additional declines throughout the year. Yet, no observable decline in retail leasing demand has been observed. Despite softening fundamentals in the office and multifamily sectors, more mixed-use developments are underway across the market. Thor ‘s mixed-use project Kirby Collection will add 67,000 square feet of retail and restaurant space to the Inner Loop. As well, Landry’s high-rise The Post Oak and multifamily-dominant project, Mid Main are under construction. While these projects are not retail heavy, a varied tenant makeup allows developers to hedge risk from high land and construction costs.