Housing growth sparks retail projects in Houston suburbs
Retail construction could be ready for a rebound as demand from a growing number of suburban Houston households increases and the economy gains momentum.
Developers of grocery-anchored shopping centers are taking notice of the thousands of homes being built across Houston’s suburbs. That growth comes as consumers are spending big on groceries both in-store and online. During the COVID era, grocery sales zoomed as people chose to eat at home over going to restaurants.
Grocery spending surpassed restaurant spending last year as shoppers filled their pantries instead of filling tables at restaurants, according to JLL’s Grocery Tracker report.
That uptick comes as retail construction across the greater Houston area fell by more than 50 percent over the year to a low of 700,000 square feet in 2020, according to Weitzman, a Dallasbased real estate services firm that tracks centers of at least 25,000 square feet.
While retail construction has been shrinking since 2018 following a surge in grocery-anchored centers along the Grand Parkway, projects are picking back up. For example, H-E-B plans to break ground on a new store in Manvel in mid-2021, according to Weitzman.
Retail occupancy, which fell to 93 percent in 2020 from 95 percent in 2019, is projected to increase this year, helped by the strong residential market, according to Weitzman. Demand is picking up, including from restaurants seeking retail spaces exited by other tenants during the pandemic.
The growth in occupancy follows a surging residential market. People are out in full force shopping for houses, which frequently serve double duty as offices, and are willing to be farther out to gain more space and outdoor amenities as commute times become a lesser factor in the wake of the pandemic and the rise of work-fromhome.
Builders started construction on nearly 37,000 houses in the Houston region in 2020, a jump of more than 20 percent from the previous year, according to Zonda, a housing information firm.
Shopping centers that provide for the daily needs of surrounding residents have been more reliable about paying rent during the pandemic than some other kinds of stores.
Retail centers with higher exposure to retailers that sell essentials, such as grocers, reported the strongest rent collection rates in 2020, said Lindsay Dutch, an analyst with Bloomberg Intelligence.
Those factors are at play as projects get underway across the Houston region. Among them, Costco is building a businessoriented store in the Grid development in Stafford; Fidelis Realty Partners bought land in the Willis area for a grocery-anchored development near The Woodlands Hills master-planned community; and H-E-B broke ground on a store that will anchor the new Eastfield at Baybrook shopping center at the Gulf Freeway and El Dorado Boulevard in the Clear Lake area.
A project of Regency Centers and CDC Houston, Eastfield at Baybrook will bring 30,000 square feet of retail space alongside the H-E-B, plus spots for six smaller buildings. The project is projected to break ground in the third quarter after securing commitments for 50 percent of the space.
Regency is designing the center with an eye to the future, incorporating features that have gained in popularity during the pandemic such as drive-thrus and outdoor gathering areas and seating. About half of the space could be devoted to restaurants, up from 30 percent in traditional projects. Boucher Design Group is the architect.
“We designed it with a lot of breezeways, 36-foot sidewalks and lot of shade so people will want to hang out outside in the summertime in Houston,” said Abe Pacetti, vice president, investments at Regency.
Regency is in talks with potential tenants including a high-end wine bar, a Mexican restaurant and a fast-casual chicken restaurant.
“We’re kind of feeling the thaw of COVID on the leasing front,” he said.