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Q4 2021 | Houston Retail Market Report

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2021_Q4_Retail_HERO_1536x1040
 “The last three quarters of 2021 brought a flurry of
leasing and sales activity, resulting in Houston finishing
the year as the nation’s hottest retail market.”
Wade H Greene IV, CCIM | Principal |Director of Retail Services | Houston

 

Key Takeaways

  • Vacancy continues to decrease
  • Positive absorption recorded
  • Rental rates increased 5.6% in 2021
  • 2021 leasing volume reaches 5.8M SF
  2021_Q4_Retail_Vacancy Rate   2021_Q4_Retail_Net Absorption 
   2021_Q4_Retail_Under Construction    2021_Q4_Retail_Lease Rates

 

Houston Highlights

Houston’s vacancy rate decreased 40 basis points from 6.2% to 5.8% over the quarter as more inventory was leased than new inventory delivered. Houston’s retail sector recorded 1.3 million square feet of positive net absorption in the fourth quarter, pushing the year-end total to 3.1 million square feet absorbed. Leasing volume reached 1.5 million square feet in Q4 bringing the year-end net total to 5.8 million square feet. The average asking rental rate rose 2.8% over the quarter and increased by 5.6% on an annual basis.

Market Indicators

2021_Q4_Retail_Market Indicators 

Historic Comparison

2021_Q4_Retail_Historic Comparison 

 

Market Fundamentals

2021_Q4_Retail_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.

Recent Transactions

2021_Q4_Retail_Recent Transactions_1   2021_Q4_Retail_Recent Transactions_2   2021_Q4_Retail_Recent Transactions_3  
2021_Q4_Retail_Recent Transactions_4    2021_Q4_Retail_Recent Transactions_5   2021_Q4_Retail_Recent Transactions_6  

 

Executive Summary

Commentary By Wade H. Greene IV, CCIM | Principal


Houston Finishes 2021 as One of Nation’s Top Retail Markets. What Lies Ahead?

In January 2021, the word most used amongst Houston’s retail experts to summarize the condition of the market and its recovery was much like that of the rest of the world; uncertain. Vacancy rose, leasing activity slowed and new developments stalled, or were put on hold. Things soon changed for the Bayou City and other major Texas markets following the end of the first quarter. Due largely to the state’s position on COVID-19 restrictions, consumers started to return to the office (at a rate faster than any other city in the country) and felt safe in leaving home to eat, drink and shop. The last three quarters of 2021 brought a flurry of leasing and sales activity, resulting in Houston finishing the year as the nation’s hottest retail market. In January 2022, Bisnow reported that “Houston has outpaced all other U.S. major metros for retail demand and new construction deliveries. ” When speaking with our peers regarding the outlook of 2022, the consensus is bullish for these trends to continue. Even with the overall positive market activity, which will continue through this year, there are several trends that brokers and retailers alike will need to navigate in 2022.

Lack of Inventory

Houston entered the pandemic as one of the top retail markets in the country. Following the rapid reabsorption of vacancy and increased new-to-market users in 2021, it became clear that there is a lack of quality space in our market. With increased competition for well-located real estate, landlords are more methodical to whom they award their sites. Creditworthiness, operating history and concept are all becoming equally as important to who will pay the highest rent. Fortunately, developers are also feeling confident in the rebound of retail, and new urban core and suburban projects are starting to come out of the ground. Several had been scheduled to break ground during the pandemic. While this should help the new site demand for many concepts, finding quality spaces will likely remain a challenge for 2022. Many users will need to exercise pertinence and creativity for the right opportunity or pipeline sites for 2023 or 2024 openings.

Rental Rates

Economics 101 tells us that prices will increase with an increase in demand and supply shortage. This has been the case in Houston throughout 2021, as rents have slowly crept up, especially in mature Inner Loop Trade Areas. With construction costs hitting all-time highs, new urban and suburban projects have seen increases in asking rental rates. While developers and landlords are achieving higher rents than in years past, we believe market rents should stabilize throughout 2022. With inflation-setting records, one rental economic trend likely to be implemented more often by property owners in 2022 is annual rent increases on new leases and renewals.

Supply Chain and Staffing

These are two COVID-19 trends that Houston’s positive velocity could not outrun. It will be intriguing to see how things play out for both existing and soon to open retailers and restaurants. Throughout the pandemic, restaurant operators’ staffing has been a significant issue and remains unsolved in 2022. The rising labor cost and the challenge of being fully staffed have posed a problem for many operators. Coupled with higher rents and buildout costs, the already thin margins in the F&B world become even harder to land in the black. As a result, the quality of operator, concept and positioning of real estate becomes more critical to be successful.

Throughout the history of retail, brick-and-mortar users have constantly evolved. Somehow through the supply chain issues brought on by COVID-19, retail store openings have exceeded closures for the first time in over 5 years. Retailers have used the supply chain issue as a way to use physical stores as distribution centers. Through same-day, last-mile at-home delivery and in-store pick up. Retailers have seen in-store sales increase from consumers that are picking up an item purchased online in the store. To double down on getting consumers in their locations, brands emphasize providing an experience that cannot be replicated online. We can confidently say that major retailers will remain resilient throughout 2022 and will see a second year of openings eclipsing shuttered units.


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Q4 2021 | Houston Retail Market Report

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Lisa Bridges

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