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Q1 2021 | Houston Retail Market Report

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After a very difficult year, retail is roaring back as the
country reopens. New concepts are blooming. Our
retail site selection teams are busier than ever.
Patrick Duffy | President

 

Key Takeaways

  • Vacancy remains low
  • Absorption drops significantly
  • Developers face new challenges
  • Houston continues to attract new residents
2021_Q1_Retail_Vacancy Rate 2021_Q1_Retail_Net Absorption 
 2021_Q1_Retail_Under Construction  2021_Q1_Retail_Lease Rates

 

Houston Highlights

Houston’s vacancy rate increased marginally from 5.9% to 6.0% over the quarter as 263,800 SF of new product delivered. Construction activity remained steady between quarters and retail foot traffic picked up as COVID restrictions in the state of Texas eased. According to Emsi, a labor market data company, Houston’s MSA population grew by 500,885 over the last five years, now at 7,172,693, and is projected to grow by 544,540 over the next five years. Total regional employment grew by 74,098 over the last five years, now at 3,350,731, and is projected to grow by 166,496 over the next five years. The top three industries in 2020 were restaurants and other eating places, education and hospitals, and general medical and surgical hospitals.

Market Indicators

2021_Q1_Retail_Market Indicators

Historic Comparison

2021_Q1_Retail_Historic Comparison

 

Market Fundamentals

2021_Q1_Retail_Market Fundamentals

Based on a 5-year historical average, the forecast trends to positive net absorption by year-end 2021.
The average asking rents in the table to the left are an average of all property types that are currently listed with an asking rate. This average does not include properties that are fully leased or that do not list an asking rate.

Recent Transactions

2021_Q1_Retail_Recent Transactions 1

2021_Q1_Retail_Recent Transactions 2

 

Executive Summary

Commentary By Chadd Bolding, CCIM | Vice President

 A quick drive through urban and suburban areas of Houston tells the story that post-COVID, Houston is continuing to grow and attract new residents and additional retailers. While growth is a positive indicator of the local economy, it can have some unwanted side effects. This quarter, we focus on retail development and three (3) factors that are having a financial impact; rising construction costs, new city guidelines for storm water detention and an investment trend moving into hard assets.

Last year we saw a disruption to the supply chain, giving developers a choice to seek alternative materials or delay construction. This material shortage is estimated to have a 4 – 6% increase in costs for 2021 before factoring in an impact from looming inflation. On top of material shortages, we now face a skilled labor shortage. According to a BizJournals study, Houston led the nation in lost construction jobs totaling 22,500 or 9%. The strange phenomenon is, even though Houston should have ample laborers for emerging projects, there are fewer qualified candidates. Researchers believe this shortage is caused by several factors; a decline in apprenticeship programs, construction workers seeking more stable opportunities, retiring baby boomers and less enthusiasm for skilled work. Combine all factors mentioned and the effects are higher wages, lower hiring standards and higher training costs.

Flooding seems to be an annual event now in Houston and Tropical Storm Harvey was the final nail in the coffin for the city to act and implement change. The new storm water guidelines affect the amount of detention required on-site and the height for the finished slab. Both of these factors have had a significant impact on total project costs. In some cases, detention requirements have tripled and developers are forced to choose between buying more land to accommodate larger detention ponds or construction of expensive underground detention through a network of pipes and plumbing. The revised slab height requires developers add clean fill (dirt) to the site or use poured-in place piers and beams. Even the Heights area (effectively the highest elevation in the City of Houston) is not immune to these changes. All of this results in complexity to the design, increased scope of material and labor and longer delivery time, all adding to the project’s total cost.

Reading the headlines today, it’s apparent we are living through a housing boom as families, investors, pension/private equity funds and single-family-for-rent developers compete over short supply. Did you catch it? Pension & private equity funds. This month, The Wall Street Journal ran an article about a DR Horton community in Conroe selling to a pension fund; “yield chasing investors are snatching up single family houses to rent or flip.” This buying trend continues in the single-tenant NNN market. We’ve seen cap rates compress up to 50 basis points for desirable locations with investment-grade retailers. Assets benefiting the most are those deemed Amazon-proof and essential as investors focus more of their portfolio on income-producing, investment grade retailers.

Houston is no longer the “oil town” of yesterday, diversifying into medical, shipping and logistics and, more recently, technology. Houston continues to attract new business and new families. At the same time, this growth creates challenges and increases costs for retailers. Houston lags behind other major metros such as New York, Los Angeles, and Chicago regarding the cost of doing business. It’s been exciting to watch Houston grow and we look forward to overcoming these current challenges and continuing the trend.

 

Gaylord Village Towers

 

Tiny’s Milk & Cookies
Colliers recently had the opportunity to represent Tiny’s Milk & Cookies in lease negotiations for it’s third location at 9655 Katy Freeway in Houston, Texas.

Tiny’s Milk & Cookies is an extension of the Tiny Boxwoods restaurants. Priding themselves on their beloved and classic chocolate chip cookies, the team is excited to bring their concept to the Memorial neighborhood. In addition to cookies, they roast their own coffee and espresso beans, make homemade ice cream and coffee syrups, as well as bake their cookies, pastries and breads inhouse daily.



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Q1 2021 | Houston Retail Market Report

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Related Experts

Lisa Bridges

Director of Market Research

Houston

Lisa joined Colliers in 2010 as Director of Market Research and has 37 years of commercial real estate experience. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually, including quarterly reports on Houston's retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials supporting the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to existing and potential clients.

Lisa serves on the Colliers Editorial Board, the Colliers U.S. Research Council, and is a recipient of the Colliers Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

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Chadd Bolding

Vice President

Houston

Chadd Bolding is an accomplished commercial real estate broker with nearly 20 years of real estate experience ranging from leasing, acquisition, disposition, off-market site selection and development.  He is the author of several articles on the outlook of Houston’s real estate market and has been quoted in leading publications including Globe Street and Commercial Gateway and most recognized by the Houston Business Journal for closing one of Houston’s larges transactions for 2016.  One of Chadd’s defining qualities is his unrelenting persistence and passion to deliver measurable results to the shareholders.

Chadd's real estate experience spans from office and retail leasing to work with regional and national developers on projects ranging from single-tenant NNN built-to-suits to a 900 acre master planned golf course community.  Before joining the real estate community, he had a 10 year career in sales; spanning from door-to-door sales in college to a sales and management role for a national manufacturer/retailer.  His background in sales helps in identifying hidden opportunities and cost saving solutions while forging lasting relationships with his clients.

Outside of the office, Chadd sits on the advisory board for CCIM and partners with Living Water International, leading teams to Central America to provide a fresh water source for those in need.  Chadd’s other hobbies include building hardwood furniture, competitive motorsport racing and cycling.

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Patrick Duffy

President

Houston

Pat is the managing director of brokerage services in Houston for Colliers.  Pat has more than 37 years of experience in commercial real estate as a producing broker, educator, sales manager and managing broker. Pat relocated to Houston from Florida where he served as President of the Colliers offices in Tampa Bay, Orlando and Southwest Florida.

​Pat started his career as Director of Marketing for a real estate data base company where he spent three years interviewing top brokerage houses throughout the United States and assisted in their automation needs as a consultant and instructor.   As President of the Colliers Houston office, he has direct responsibility for recruiting, training and managing the sales and leasing teams, property management and business plan creation and coordination for the company.

Pat was responsible for building and organizing retail service delivery capabilities for Colliers worldwide as chairman of the Colliers Retail Specialty Group (96-2000, 2002-2013).  Pat is also a founding member of the Colliers Oil and Gas practice group.  Among his academic accomplishments, Pat wrote the capstone case study for the CCIM program's final course offering from 1986 - 1998.  The case study combined the marketing and financial concepts taught by CCIM to allow the students to apply the material to a simulated commercial property disposition.

He has been an instructor for NACORE’s (now CORENET) Intermediate Finance Course and was awarded the Top-Rated Faculty Certificate in 2000.  Pat has been quoted in national and regional publications including the Wall Street Journal, Dow Jones, Newsweek, Real Estate Forum, National Real Estate Investor, Globe Street and others.  He has been an expert panelist for NAIOP, Real Share, ICSC and many other real estate organizations.

Pat has served as a member (and Chairman) of the Colliers Managers Steering committee, the Board of Directors for Colliers USA and is the past Chairman of the Colliers USA Board of Advisors.  In 2003, Pat was awarded Colliers Manager of the Year.  In 2004, he was chosen by Colliers as the Tom Richardson Award recipient, an honor based on strength of character. In 2012, Pat was chosen as the recipient of the Colliers USA Pinnacle Award for service excellence.  Pat is the only person in Colliers to win all three of these awards.  He served as an instructor for Colliers University 2010-14.   In 2017 Pat was recognized as a “Best Boss” by Real Estate Forum magazine.

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