Houston retail construction taps on the brakes
Houston developers are scaling back on retail construction as occupancy levels remain strong and new tenants continue to fill empty spaces.
The Houston region is on track to open 1.3 million square feet of new and expanded retail space in 2019, down from 2.7 million square feet in 2018, according to Weitzman, a Texas commercial real estate services company that tracks retail projects of at least 25,000 square feet.
“The cycle of all the construction on the Grand Parkway is reaching a natural breathing point as a lot of the projects have been completed,” said Ian Pierce, vice president of communications at Weitzman. “Other than H-E-B, you’re not seeing a lot of grocery construction.”
While the construction of grocery-anchored centers along the Grand Parkway has largely subsided, H-E-B is still among the most active retailers in the local market. New stores set to open in 2019 include locations in the Heights, the Third Ward on North MacGregor and the Buffalo Heights mixed-use development on Washington Avenue.
Mixed-use projects and developments anchored by entertainment and fitness tenants are also contributing to construction activity. Internet-resistant retailers such as Star Cinema Grill, AMC and Dave & Busters are expanding in the suburbs, with some movie chains opening multiple locations. CityPlace in Springwoods Village will add a Star Cinema Grill and 24 Hour Fitness this year.
Several mixed-use projects are starting to come together along the Allen Parkway corridor. They will help meet demand from retailers who want to be in urban live-work-play environments, according to commercial real estate firm JLL. Regent Square is planning 600-unit apartment complex and 50,000 square feet of retail space at West Dallas and Dunlavy streets in its next phase. The Allen, along Allen Parkway and Gillette Street, will have office, condos, hotel and retail.
Developers have taken a more conservative approach to projects over the not last decade, preferring to sign tenants before starting construction, a strategy that has kept vacancy rates relatively low. Now, much of the new space coming online is in expansions of existing projects, which
tend to be smaller, Pierce said.
Area retail occupancy held steady at 94 percent at midyear, according to Weitzman. That’s nearly 8 percentage points higher than a decade ago when the nation was in the midst of a recession and retailers such as Linens N Things, Circuit City, Sharper Image and Steve & Barry’s shut down.
“In 2009, there was nobody stepping up to take that space,” Pierce said.
That’s not the case today. Weitzman pointed to recent deals, such as Life Time Fitness going into 56,000 square feet at downtown’s GreenStreet mixed-use development, along with a Life Time Work coworking component. Hobby Lobby leased a vacant Toys ‘R’ Us consisting of 48,000 square feet in Fairway Center in Pasadena. Urban Air Adventure Park took a former Home Depot at 20251 Gulf Freeway in Webster, and also fill a spot in the former Sam Moon Trading Co. location in Shenandoah.
The projected 1.3 million square feet of construction is a fraction of the 4.9 million square feet completed in 2008, according to Weitzman. The total dropped to 2 million square feet in 2009.
Notable projects for 2020 include M-K-T, a transformation of warehouse buildings into a mixed-use project with restaurant and retail space at North Shepherd at 6th Street, and a two-story H-E-B in Meyerland Plaza.