Playing catch-up
Houston area seeing growth fueled by grocers, restaurants and other retailers despite effects of the energy slump
HOUSTON’S retail real estate market is expected to continue expanding through the end of the year despite the slump in energy and consumer spending.
The local office of the CBRE real estate firm this week released data showing that retailers occupied 810,000 more square feet of leased space in the third quarter, and 2.8 million square feet so far this year. It’s the fastest expansion in more than a decade; by comparison, retailers had absorbed only about 1.5 million square feet at this time last year.
“We saw the strongest net absorption this year to date since 2000, and we’re not even done yet for the year,” said Robert Kramp, CBRE’s Houston director of research and analysis.
The firm forecasts another 200,000 net square feet will be occupied by year’s end. Kramp said the expansion, driven largely by grocers, restaurants, home improvement and soft goods retailers, reflects population growth and pentup demand following the last recession.
“This is telling a muted story that retail developers were (slow) coming out of the recession,” he said. “At the same time, we saw record population gains, and they’re now catching up to that retail demand.”
Despite the optimistic forecast, several economic measures indicate that the drop in crude oil prices put a damper on consumer spending in the Houston area.
The metro area has seen consecutive declines in comparable monthly sales tax revenue for about a year, accord-
ing to data from the Texas comptroller’s office. Local auto sales, which showed a hint of improvement in August, were still down 7.2 percent from the same month last year, according to TexAuto Facts.
Kramp said some of the declines reflect a pullback in business spending in the oil and gas, manufacturing and business services sectors, while retail sales in general merchandise and food and beverages improved in the Houston area.
“As we delved in close to the data showing gains in retail spending, we saw it is in the traditional sectors associated with population growth,” he said.
A number of major retailers have opened new stores in the area in recent months, illustrating recent expansion.
Cincinnati-based Kroger, which opened four stores in the Houston area this year, is planning to open another in Katy later this month as part of its $500 million investment plan for the regional market. Company spokeswoman Kristal Howard said the expansion mirrors local growth and demonstrates the company’s interest in grabbing a larger share.
“We have our eyes on this market and other competitors have their eyes on this market,” she said.
San Antonio-based H-E-B plans to open stores in Kingwood and Aliana by year’s end.
Katy-based Academy Sports + Outdoors has continued to find growth opportunities in its hometown. It plans to open its 96th Texas store in Pearland on Friday, and CEO J.K. Symancyk said the company anticipates opening another in the west Spring area next year.
“I think Houston is a growing market,” he said. “It’s got a diverse economy that’s multidimensional, and that means we bridge the highs and lows pretty well.”
The Big Salad, a restaurant chain based in Michigan, opened its first Houston location last month as part of a larger push into the area. Founder and CEO John Bornoty said the company has been eyeing the market for about two years. It plans to open four more restaurants in the city’s outlying areas next year and then focus on areas closer to downtown.
“Houston is doing well, and it’s going to keep doing well,” Bornoty said. “We’re going to surround it and then come in.”
The market expansion also has pushed up rent prices, the CBRE data show. Rates averaged about $23.50 per square foot in the Houston area this quarter, up from about $22.06 during the third quarter of 2014.
For some retailers, the increases have hindered their prospects for expansion.
Dallas-based Half Price Books, which has nine Houston-area stores, has been looking to expand but can’t find affordable locations as the market heats up.
“It’s really hurting a lot of the retailers like us that are really conservative in terms of rent structure,” said Kathy Doyle Thomas, the company’s executive vice president. “We keep trying to find more openings and we just cannot find them.”