99 Cents Only Closures Put Houston Retail Landlords ‘In A Great Position’

Bankruptcy and liquidation are usually bad news, but in tight retail markets, brokers and landlords see it as an opportunity to facilitate new tenants and higher rents.

That is likely coming in Houston amid the planned liquidation and closure of all 99 Cents Only Stores, including about 20 in the Houston area, local retail experts say. Houston has a low construction pipeline and high retail occupancy, meaning any big-box vacancies will likely be seized upon, CBRE Senior Vice President Jazz Hamilton said. 

“I see it as an opportunity,” said Hamilton, who is in the firm’s retail advisory and transaction services group.

The news of 99 Cents Only Stores closing was bittersweet for Lilly Golden, the president of Evergreen Commercial Realty. Along with Ed James, she facilitated the brand’s entry into the Houston market, she said. The chain had been operational in California, Texas, Arizona and Nevada since 1982.

“However, as one door closes, another opens,” Golden said in an emailed statement. “With Houston boasting record occupancy rates, these vacant spaces offer much-needed opportunities for eager tenants previously deterred by the steep costs of new construction.”

The brokers said potential uses vary for these stores, which are likely around 20K SF to 30K SF, according to Hamilton. Golden named discount grocers, auto parts suppliers, furniture stores and “virtually any enterprise in need of ample big-box retail space” as potential tenants.

If the stores have 18-foot ceilings or higher, landlords can get creative on their uses, Hamilton said, naming fitness and entertainment venues as other potential uses. 

Due to the fundamentals of Houston’s retail industry — vacancy sits at about 5%, according to CBRE — it is unlikely that the locations will be replaced with similar dollar-store concepts.

“There’s going to be constraints and limits on what these types of concepts can pay in rent,” Hamilton said. “Because we are at a high occupancy rate, I’m guessing that these landlords are going to have a few options as far as tenants.” 

It was a similar situation when the 15 Bed Bath & Beyond and Buybuy Baby stores across the Houston Metro closed last year, Hamilton said. Most of those have already been leased or are negotiating leases right now.

During the Global Financial Crisis, another time when the Houston retail market saw numerous big-box store closures, landlords sought out discount and thrift stores to fill spaces, he said. Now, landlords will be seeking out tenants with superior credit, like medical users.

Property owners can also use these closures as an opportunity to upgrade their HVAC, electrical or other systems to push up rental rates, Hamilton said.

“Most of these 99 Cents stores, hence the name, had lower rents. They could have been in single-digit rents,” he said. “Now it’s an opportunity for the landlords to get double-digit rents.”

Landlords can push rents even higher if they are well capitalized and can offer tenant improvement allowances or cater to specific needs.

“It just puts those landlords in a great position,” Hamilton said. “Just making a few dollars a square foot difference on the rent can be huge for the value add of a shopping center.” 

CORRECTION, APRIL 16, 4:02 P.M. CT: This article has been updated to more accurately reflect the number of 99 Cents Only Stores locations in the Houston area.