“Houston’s retail market remains one of the more active
sectors in the country and demand is starting to quickly
outpace the supply of quality space.”
Wade H Greene IV, CCIM | Principal |Director of Retail Services | Houston
- Houston’s population growth caused increasing demand
- Vacancy remained low
- Positive absorption recorded
- Rental rates increased
- Leasing activity up 37 percent
Houston’s vacancy rate decreased 20 basis points from 5.9% to 5.7% over the quarter as more inventory was leased than new inventory delivered. Houston’s retail sector recorded 671,400 square fee of positive net absorption in the third quarter. Leasing activity increased 37 percent between quarters recording over 1.5 million square feet in Q3. According to the U.S. Bureau of Labor Statistics (BLS), Houston’s Retail Trade employment sector increased 1.4% and the Clothing and Clothing Accessories Stores sub-sector increased 9.7% between August 2020 and August 2021.
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.
Commentary By Cody Persyn | Senior Vice President & Wade H. Greene IV, CCIM | Principal
Retailers Brace for Strong Holiday Season, but New Challenges Loom
Following the roller coaster year that was 2020, retailers have found themselves in a much brighter situation than forecasted. For the first time in years, new brick and mortar openings are outpacing store closures. Retailers are also enjoying sales increases both instore and online in 2021. Including the highest ever instore retail sales increase during the second quarter of 2021.
However, with inflation, hiring challenges and supply chain disruptions going into the holiday season, retailers find themselves once again having to evolve, adapt and find solutions to difficult questions. Will shipments arrive to fill the shelves? Will workers be available when needed most? How will consumers respond to increasing prices?
Academics love the case studies that are becoming realized daily, but the real world does not. Supply chain bottlenecks have made all the headlines. In late September, news sources reported that an estimated 500,000 containers were waiting in line at the Port of Los Angeles and Long Beach. Additionally
in October, news sources reported that Walmart, Target, Costco and Home Depot have reached the point of actually chartering ships so they have more control over the arrival of their products. Other retailers simply have to wait as ships are redirected to other ports or delayed.
The U.S. Federal Reserve Bank forecasts tempered inflation, but this is difficult to believe the way prices have been rising in Houston and across the nation. Retailers have increased wages considerably over the past years simply to retain workers. Increased labor expense directly influences price levels. Commodities are at multi-year highs. What’s more, the last dollar store holdout to actually sell products at $1 each, Dollar Tree, has recently announced increases to $1.25 and $1.50. Will inflation ebb or continue to diminish buying power?
The flip side is that some of these “problems” are the result of good things. The almighty American consumer has not been deterred. This was evidenced by an increase in consumer spending of 0.8% in August after a 0.1% increase in July according to the Bureau of Economic Analysis. ICSC, a major trade group for the retail real estate industry, shared the results of their annual Holiday Shopping Intentions Survey on October 12th. Their survey forecasts an increase of roughly 9% on holiday spending this year, with 78% of shoppers anticipating spending the same or more. While the death of physical retail has been widely speculated following the rise of e-commerce, ICSC’s survey found 85% of shoppers plan to spend money in physical stores. And will consumers have fun while shopping? It certainly seems that way with food and beverage establishments expecting 35.4% year-over-year growth according to ICSC.
More questions than answers…and seeing how this holiday season proves out is sure to be interesting. Will consumers buy today because it will cost more tomorrow? Buy today because it won’t be on the shelf tomorrow? Will clinically diagnosed procrastinators stick to their guns and wait until the week before Christmas to shop? Or, will they take the widely recommended advice to start shopping early this year? Time will tell, but planning ahead may be wise to avoid stuffing stockings with a wide assortment of gift cards, IOUs, or tracking numbers.