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Q2 2019 | Houston Retail Market Report

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Brick and Mortar Retail in the Age of Omnichannel


Retail Trends

Commentary by Patrick Duffy, MCR, President


For almost twenty years, we have been hearing that the internet was going to be the death of retail. As retailers, both traditional and internet pioneers, have improved the on-line experience and changed the face of delivery logistics, it is very apparent that the retail landscape of pre-2005 has in fact been mortally wounded. The good news is that most retailers have made adjustments which embrace the new world of Omnichannel with positive results. Omnichannel retailing is retail that integrates the different methods of shopping available to consumers (e.g., online, in a physical store, or by phone). Even traditional grocers are now fully embracing the concept of Omnichannel with both home delivery and curb side pickup that was once reserved for the uber-rich who could employ personal shoppers.

Even restaurants once believed to be immune to the impacts of the internet, are feeling the pinch (and the lift). This is especially true of the sector which relied heavily on take-out and delivery like the pizza chains (Dominoes, Papa Johns, etc.) as services such as UberEats, GrubHub, DoorDash and Eatsy have essentially turned any restaurant who chooses to participate into a home delivery competitor.

While it is clearly true that retailers with pure commodity products, easily selected and shipped via online or phone, with limited risk to the consumer are likely to evaporate from the brick and mortar landscape, most retailers have now come to the realization that a purely online presence is not necessarily the optimal approach. Traditional online-only retailers are now opening brick and mortar outlets to complete their omnichannel offering completing the necessary “last mile” of the delivery. By improving the consumer experience at every step and every option of purchase, retailers build brand loyalty and exposure. Roughly 80% of shoppers utilize their phones (online) while shopping at a physical store. Retailers who have streamlined this process are seeing very positive results. We are seeing stronger than expected overall retail sales in thepast year with significant earnings “beats” by these retailers. There is no doubt that a very strong economy, high consumer confidence, low unemployment and growing wages are major contributors to these results but there is a large gap between retailers who have omnichannel figured out and those who have not. The latter group is struggling to survive while the former is flourishing.

Rotation in the retail sector (the failure of retailers while new concepts are launched) has been a constant for the last century. The primary change has been the speed of this rotation in the modern world.

What does all this mean to retail developers and investors? The retailer mix in centers is shifting beyond traditional consumer cluster targets to include a filter for risk of disintermediation by the online competition. Several REITs have moved to more service based and strong experience-based retail only, shunning any commodity retailers. Others are clearly including the retailer’s ability to utilize omnichannel in their overall strategy to help reduce the risk of tenant failure.

Houston has seen very healthy growth in our overall retail real estate market despite all of this change in the industry. Occupied square footage of retail has increased steadily. In just the last five years occupied retail space has increased by 13.7M square feet. Troubled retail remains the exception, not the rule. Well located centers are full and rents are rising. When tenants fail, others are lined up to take their place and the cost of replacement is minimal for most concepts.

Bottom line: Retailing is changing – that is not new. Retail real estate is in good shape in Houston and most of the country. Smart investors will do well as will smart retailers.

Vacancy & Availability

Houston’s average retail vacancy rate fell 20 basis points between quarters from 5.5% in Q1 2019 to 5.3%. At the end of the second quarter, Houston had 15.2M SF of vacant retail space on the market. Among the major property types, single-tenant retail and theme/entertainment had the lowest vacancy rate of 1.5% and 1.6%, respectively, followed by Lifestyle Centers at 2.1% and malls at 2.5%. Neighborhood centers have the highest vacancy rate of 8.1%, followed by strip centers with a vacancy rate of 8.1%.

Twenty buildings delivered in Q2 2019 adding 0.4M SF to Houston’s retail inventory. Approximately 71% of the new inventory delivered pre-leased. There is currently 1.1M SF of retail space under construction, of which 74% is pre-leased. The majority of the projects under construction are located in the outlying suburban submarkets adjacent to rapidly growing residential developments. There are several H-E-B grocery stores under construction, one in the Kingwood Ranch shopping Center.


Rental Rates

According to CoStar, our data provider, Houston’s citywide average quoted retail rental rate for all property types increased marginally between quarters from $16.22 per SF NNN in Q1 2019 to $16.26 per SF NNN. These average rental rates are typically much lower than actual deal rates since they include all retail property types and classes, the majority of those properties are not well leased and are listed with discounted asking rates. According to Colliers’ internal data, Class A in-line retail rental rates can vary widely from $30.00 to $85.00 per SF, depending on location and property type.

Absorption & Demand

Houston’s retail market posted 1.1M SF of positive net absorption in the second quarter, pushing the mid-year 2019 positive net absorption to 3.2M SF. Some of the positive absorption can be attributed to tenants that expanded into new locations. Among those tenants are JCPenney, Hobby Lobby, Star Cinema Grill, AtHome, Arlan’s Market, Crazy Boss and Ross Dress for Less.

Leasing Activity

Houston’s retail leasing activity, which includes renewals, decreased over the quarter from 1.4M SF in Q1 2019 to 1.2M SF in Q2 2019. Some of the tenants that signed leases during the second quarter are listed in the table below.

Q2 2019 Retail Highlights



Q2 2019 | Houston Retail Market Report

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Lisa Bridges

Director of Market Research


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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Patrick Duffy



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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