TEXAS SNAPSHOT, SEPTEMBER 2008

Houston Retail Market

Jacob

Compared to the rest of the country, Houston is doing well, but economic indicators throughout the city have showed signs of slowing. According to Delta Associates, Houston’s retail vacancy decreased to 17.1 percent in the first quarter of 2008 from 17.4 percent at year-end 2007 and 17.2 percent just 1 year ago. Retail rents experienced a slight decrease in the first quarter of 2008 to $1.62 from $1.63 per square foot per month at year-end 2007, a quarterly decrease of 0.6 percent.

Since retail follows rooftops, the slowdown in the housing market has put a halt to many large retail developments — especially those serving the subprime market neighborhoods. Big box retailers have pulled back in these neighborhoods, causing smaller retailers to follow suit.

However, the Galleria and some suburbs in the Sugar Land/Missouri City area, as well as West Houston and Katy, continue to show population growth as companies snatch up space in the Energy Corridor along Interstate 10 between Beltway 8 and the Grand Parkway.

Mixed-use projects are coming out of the ground throughout Houston. Trammell Crow Company (TCC) is developing a two-story, 256,700-square-foot retail center at an urban infill, mixed-use development site at the northeast corner of Weslayan Street and Richmond Avenue called Greenway Commons. It features a 164,000-square-foot Costco with an LA Fitness health club occupying 45,000 square feet on the second story directly above. TCC is developing the project in partnership with The Morgan Group and institutional investors advised by Prudential Real Estate Investors (PREI®). 

In the Memorial area of West Houston, Midway Companies is developing a 37-acre urban, mixed-use development called CITYCENTRE. The project is located on the corner of I-10 West and the Sam Houston Tollway/Beltway 8, on the former site of the Town & Country Mall.

In terms of new retail projects that are coming on line, Moody Rambin is developing a The Shops at Bella Terra, a retail project that has secured Wal-mart, Kohl’s and Best Buy as tenants. It is located on the west side of town on Grand Parkway and the Westpark Tollway in Katy.

WDJ Realty Group is developing Sienna Village in Missouri City, Texas. A 113,771-square-foot H-E-B will anchor the center.

WDJ Realty Group is developing Sienna Village, a new retail development at Highway 6 and Sienna Parkway near Sienna Plantation in Missouri City. It will feature 90,000 square feet of retail including five pad sites for banks, shops and restaurants and a new 113,771-square-foot H-E-B.

NewQuest Properties is developing Fort Bend Town Center at the southwest corner of Highway 6 and the Fort Bend Parkway, also in Missouri City. The approximately 200,000-square-foot-Kroger-Signature-anchored center includes 60,000 square feet of available in-line retail space and three pad sites.

Also in Missouri City, NewQuest Properties is developing Fort Bend Town Center, an approximately 200,000-square-foot retail project.

In addition, the Austin-based health foods supermarket chain Whole Foods Market Inc. is planning to develop a 78,000-square-foot store at the southwest corner of Post Oak and San Felipe.

New to the area, CLM Franchise Consultants is developing 90 Lenny’s Sub Shops in the Houston market. While not new to the area, the following retailers also have announced growth plans in the Houston area:

• Dunkin’ Donuts plans to open 107 new franchised restaurants in Houston;

• The Kainos Partners Holding Company LLC has agreed to open 75 stores in Houston with 10 scheduled to open in 2009; and

• Southern Donuts LLC plans to open 32 units, with six scheduled to open in 2010.

Staples has signed a 25-year lease with Denver oilman John Sheridan and his Sheridan Venture Capital for a store at 8225 S. Gessner in the Sharpstown area. Warwick Construction will build the 30,000-square-foot project at U.S. 59 and Gessner. Staples will take 20,000 square feet, and 10,000 square feet will be available for lease.

Looking to the future, Park Row in the Energy Corridor continues to be a strong submarket from Highway 6 through the Grand Parkway. The tremendous growth in the energy sector is driving this market. With more businesses moving into this area, the residential market in Katy and Cypress, from 290 to I-10 West, remains healthy, as does the retail commercial markets in those areas. 

Houston’s commercial real estate market will remain strong relative to other areas of the country, but the impact of the bankruptcy filings of the Sharper Image, Dave and Barry’s, Linen’s & Things, Wickes Furniture — as well as Steak & Ale and Bennigan’s restaurants — will have a domino effect in the area’s market, as a fair amount of square footage becomes available. As the price of energy continues to remain high and spur job and economic growth throughout the area, these events are tremendous opportunities for larger retailers to enter the Houston market and secure very favorable deals on space.

— G. Peter Jacob is a principal with WDJ Realty Group in Houston.

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.