HOUSTON – (By Dale King, Realty News Report)
Store closures usually bring bad news: empty storefronts, job losses and declining foot traffic. Yet in Houston, the wave of retail failures over recent years has also created fresh opportunities. Vacant big-box properties left behind by chains such as Toys “R” Us and Sears are being repurposed, helping the city maintain healthy occupancy levels and preventing once-prominent sites from becoming long-term eyesores.
According to a mid-2019 market report from Weitzman, a Texas-based commercial real estate firm, Houston’s retail sector reported a solid occupancy rate of 94.0%, roughly matching year-end 2018 figures. The report forecasts that, with projects opened or announced in the latter half of 2019, the Houston area was on track to add approximately 1.3 million square feet of retail space during calendar year 2019.
Although leasing activity remains steady, deliveries of newly built retail space slowed in 2019—roughly half the amount recorded in 2018. Weitzman attributes that decline to the winding down of a construction surge tied to Grand Parkway expansion; the burst of development associated with that project is approaching the end of its current cycle.
Overall, the retail inventory for the Houston metro—measured across centers of 25,000 square feet or more—stood at about 160.5 million square feet. Conservative construction activity has helped keep occupancy in the mid-90 percent range over the long term, a notable recovery from the roughly 86 percent low recorded a decade earlier.
Ongoing demand for retail has steadily absorbed vacancies in existing properties. In 2019, several notable leasing and adaptive reuse projects illustrated how the market is backfilling large-box vacancies and redeveloping older spaces for new uses. Key examples include:
- Hobby Lobby leased about 48,000 square feet at Fairway Center (Beltway 8 and Fairmont Parkway) in Pasadena, occupying a former Toys “R” Us location.
- Megacenter Willowbrook, a 236,000-square-foot project at 7075 FM 1960 near Willowbrook Mall, is converting a former Walmart Supercenter into roughly 150,000 square feet of fitness, entertainment, office and co-working uses, among others.
- Duluth Trading Co. opened its first Houston-area stores in early 2019 at Baybrook Mall in Friendswood and Katy Ranch Crossing in Katy, expanding regional retail variety.
- North Cypress Landing redeveloped a vacant Randalls into a fully leased 70,000-square-foot retail center. The largest tenant, Star Furniture & Mattresses, opened in May 2019 at 12312 Barker Cypress Road in Cypress.
- Urban Air Adventure Park leased a former 100,000-square-foot Home Depot at 20251 Gulf Freeway in Webster and planned to open during the year.
- A mixed-use project of about 45,000 square feet was planned for a vacant Toys “R” Us site off IH-10 just east of Bunker Hill, with completion targeted for the second half of 2019.
- Velvet Taco announced a lease for a freestanding building along Loop 610 south of Westheimer that had previously housed an adult boutique.
- Planet Fitness opened in a former Palais Royal freestanding building in Pearland at the northwest corner of Highway 288 and Shadow Creek Parkway.
- Memorial City Mall revealed plans to redevelop its vacant Sears store and adjacent areas to create public spaces and entertainment uses.
Demand for Class A retail space—especially inside the Loop—has pushed small-shop asking rates in the best-located, newly constructed centers into the $50 to $70 per square foot per year range in the strongest, most affluent submarkets. Those figures represent averages for prime small-shop locations and can vary significantly depending on a center’s location, anchor tenants, the type and size of space, and local demographics.
Weitzman’s report concluded that the Houston-area retail market outlook for the remainder of 2019 was positive. Leasing demand remained healthy, well-located projects were effectively fully leased, and new tenants continued to occupy former big-box vacancies. The report, however, cautioned that vacancies would persist in centers with poorly positioned or outdated space. With expectations for continued economic growth, Weitzman anticipated that Houston’s retail market would remain in good health.