Skip to main content Skip to footer

Q4 2020 | Houston Retail Market Report

Download Report
2020_Q4_Retail_HERO_1536x1040

Houston restaurant & retail vacancy rates have not yet dropped for prime real estate, despite COVID

 
Commentary By Wade Greene | PrincipalHannah Tosch | Senior Associate

 
Retail Trends

As we enter 2021, COVID-19 continues to affect the way we live our lives, conduct business and the behavior of retail and restaurant consumers. While we have learned that no business is truly immune to the impacts of the pandemic, prime real estate remained occupied, leaving retail and restaurant vacancy rates low and making new desirable deals challenging to find.

For the restaurant and retail industry, 2020 has not been a matter of making profits for the most part, but merely a matter of mitigating losses. The first round of PPP loans played a major role in the majority of restaurants and retailers staying afloat for the first few months. Initially, we believed that once these government funds dried up, Houston retail inventory would start to see an increase in waves before and following the holidays. In turn, we were prepared for this to provide opportunities for well-capitalized and new-to-market concepts to penetrate the Houston market. However, nearly a year of COVID-19 financial impacts has passed for us to realize that Houston’s already low vacancy rate has remained relatively constant and dipped back below 6%.

2020_Q4_Retail_MarketIndicators

In Q2 2020, we did see a slight increase in inventory occur, only for it to be reabsorbed by the end of the year. With the second round of PPP loans on the horizon, we believe this trend will continue. Further, we expect retailers to have fine-tuned their technology and logistics effectively by this next round in a way that will allow them to stay open.

Tenants remain bullish on the Houston market, and Colliers Houston has many clients eager to sign leases, both continued Houston expansion as well as first-to-market concepts. Over the past few months, we have learned that the issue isn’t finding clients for deals, but rather it is finding deals for clients. In other words, there are many active operators ready to sign deals in Houston; the issue is the lack of opportunities given the low inventory of quality vacancy. The majority of highly sought after and well-positioned deals are happening off-market, in a similar velocity to the pre-COVID era. Additionally, as we noted in our Q3 report, Landlords are taking extra precautions when underwriting new deals.

As discussed in our Q2 2020 report, Houston retail rents have been at an all-time high, and absorption was negative in 2020 for the first time since 2012. Our takeaway is that Houston has been and will remain a top destination retail market nationally. Still, our current occupancy rate makes the right deals for expansion and new-to-market concepts a little more challenging to achieve.

Vacancy & Availability

Houston’s average retail vacancy rate dropped 20 basis points from 6.0% in Q3 2020 to 5.8% in Q4 2020. At the end of the fourth quarter, Houston had 17.4M SF of vacant retail space on the market. Among the major property types, Theme/Entertainment, Single-Tenant retail and Malls had the lowest vacancy rates of 1.0%, 1.6% and 2.2%, respectively, followed by Lifestyle Centers at 4.2% and Power Centers at 4.5%. Neighborhood Centers have the highest vacancy rate of 10.4%, followed by Strip Centers with a vacancy rate of 9.3%.

Approximately 303,242 SF of new inventory delivered during the fourth quarter and currently there is 1.0M SF of retail space under construction, of which 60% is pre-leased. One of the larger projects under construction is Houston Farmer’s Market located at 2520 Airline Dr in the Inner Loop/Heights retail submarket. The development is expected to deliver in March 2021.

2020_Q4_Retail_Image

Rental Rates

According to CoStar, our data provider, Houston’s citywide average quoted retail rental rate for all property types rose from $17.30 per SF NNN in Q3 2020 to $17.36 per SF NNN in Q4 2020. 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 $20.00 to $85.00 per SF, depending on location and property type.    

Absorption & Demand

Houston’s retail market posted 829,210 SF of positive net absorption in the fourth quarter. The retail sector posting the largest amount of positive absorption in Q4 2020 was Single Tenant retail properties, recording 345,596 SF of positive net absorption. Community Centers recorded the largest amount of negative absorption posting 319,916 SF of negative net absorption. Community centers usually have two anchors and the balance of the center is occupied by smaller retailers offering services from nail salons to casual dining.

Leasing Activity

Houston’s retail leasing activity, which includes renewals, rose 27.3% over the quarter from 1.1M SF in Q3 2020 to 1.4M SF in Q4 2020. Some of the tenants that signed leases during the fourth quarter are listed in the table when you download the PDF.

Q4 2020 Houston Retail Highlights

2020_Q4_Retail_Highlights


2020_Q4_Retail_SearchResultImage_1024x972

Q4 2020 | Houston Retail Market Report

Download Report
Related Experts

Lisa Bridges

Director of Market Research | Houston

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 International Editorial Board, the Colliers International U.S. Research Council, and is a recipient of the Colliers International 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.

View expert

Wade Greene

Principal | Houston

Houston

Wade Greene joins Colliers Houston as Director of Retail Services and Principal of the company.  Greene will use his experience and enthusiasm for retail brokerage to grow the Colliers Houston Retail and Hospitality Advisory Teams.  

Wade specializes in tenant representation services for local and national restaurant, retail, and entertainment concepts.  With the assistance of C-Suite level clients and his national brokerage network, Mr. Greene has built a Franchise Growth Solutions Platform, helping companies seamlessly execute franchise driven roll outs across the country. 

A native Houstonian and second-generation Houston based commercial real estate professional, Wade has represented companies such as, Alamo Drafthouse Cinemas, Walmart, Salata, Kids Empire, Darden Restaurants, Earl of Sandwich, Putt Shack, Flight Club, Ace Bounce, Seoul Taco, Tasc Performance Apparel, Krewe Optical, Chick’n Cone, Firehouse Subs, Voodoo Doughnut, Jollibee, Roses, Anytime Fitness, Dat Dog, Dyson and Award-Winning Texas Chefs.     

View expert

Hannah Tosch

Senior Associate | Houston

Houston

Hannah Tosch serves as a Senior Associate on the Houston retail team. Tosch has been in the business and with Colliers for 5+ years. Her primary focus is tenant representation services for local and national restaurant, retail and entertainment concepts. As a native Houstonian, Hannah combines her existing relationships with her passion for the restaurant industry to best serve her clients.

Hannah’s current client list includes Salata, Chickn’ Cone, Kids Empire, Putt Shack, Flight Club, Ace Bounce, Tiny Boxwoods, Clark’s Oyster Bar, Mico’s Hot Chicken, Jollibee, Red Ribbon, Chowking, Crumbl Cookies, Sola Salons, Idle Hands Bar, Parlor & Yard Bar, Earthcraft Juicery, Hey! Joy Toy Store and Award-Winning Texas Chefs.

 

View expert