“Despite combatting mandates, labor shortages and now
rising food costs, national restaurant concepts are still
pushing to expand their presence in Texas.”
Wade H Greene IV, CCIM | Principal |Director of Retail Services | Houston
Key Takeaways
- Vacancy continues to decrease
- Positive absorption recorded
- Rental rates increased 3.5% annually
- Q1 leasing volume reaches 1.9M SF
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Houston Highlights
Houston’s vacancy rate decreased 20 basis points from 5.8% to 5.6% over the quarter as more inventory was leased than new inventory delivered. Houston’s retail sector recorded 1.1 million square feet of positive net absorption in the first quarter. Leasing volume reached 1.9 million square feet in Q1, an increase of 26% over the quarter. The average asking rental rate increased marginally over the quarter, but increased by 3.5% on an annual basis.
Market Indicators
Historic Comparison
Market Fundamentals
The forecast in the above graph is based on a trailing 4-quarter average.
*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.
Executive Summary
Commentary By Hannah Tosch | Senior Associate
How are rising food prices affecting Houston’s food and beverage scene?
The restaurant industry is tough enough as it is when times are good. Margins are tight, quality staffing is challenging, and the competition is ever-changing. Especially in a culinary capital like Houston. When you factor in a global pandemic, the war in Ukraine, supply chain problems and inflation, an already cutthroat industry needs more than just thick skin to survive. The rise in food prices has forced the restaurant industry to react, and we are observing our clients taking creative measures to take care of their customers while also taking care of themselves.
Despite the setbacks the industry currently faces, we are consistently hearing from clients that they have never been busier from both a customer count and revenue perspective. This is not surprising considering that Houston wrapped up 2021 as one of the nation’s hottest retail markets with vacancy rates continuing to shrink into 2022. Moreover, we can’t ignore the issue of rising food costs, which has been happening over the past year, but only recently compounded dramatically.
According to Restaurant Business, restaurant menu price inflation is at the highest it’s been in 30 years, with both QSR and full-service restaurant price increases of at least 7% over the past year on average. The rise of food and labor costs are affecting both local restaurants and national chains alike. And it’s not just the cost of food; restaurants are feeling the extra pinch with the rise in paper products too, such as cups, plates and straws. Raising prices takes care of scarcity, but not shortage. This is one reason many restaurants are looking to other measures to counteract the challenges ahead aside from only relying on increasing their menu prices.
According to some of our clients, menu engineering will be key going forward for sustainability. Many restaurants are working hard to create lower cost dishes and to simplify their menu to incorporate less ingredients, rotating as often as weekly based on both change in current cost and supply and demand. Portion control is another topic being discussed. Thanks to economies of scale, restaurants can spread the same amount of product much further with even a slight cut back on portion size. The cost of food is one thing, but the bigger question becomes how efficient you are with the items once you get them. Restaurants are facing an elevated pressure to perfect the ratio of items ordered to items sold, without wasting product, but also without selling out too early.
Despite the rise in food costs, there is a silver lining that the restaurant industry benefits from; restaurants are not the only ones carrying this burden. Winsight Grocery Business states that the current inflation rate in grocery stores is 7%, however the average consumer feels as if it is 10% higher than that. With this consumer mentality, this means many consumers could actually look to dine out more than before. Additionally, third party food delivery services may struggle to outrun both inflation and rising gas prices, as many of these services are tacking on higher fuel charges. In turn, this may encourage consumers to work directly with restaurants for to-go orders, which could save restaurants up to 30% with every order.
As we enter into Q2, everyone is wondering if these prices will continue to rise or if they will flatten. The USDA’s Food Prices Outlook predicts continued food price increases, so these challenges may not go away soon. In addition, many restaurants will look to creative ideas to limit punishment to consumer’s pocketbooks in order to retain loyalty.
