As Cities React To Delta Variant Surge, Houston’s Retail Sector Carries On As Usual – For Now

The highly contagious delta variant of Covid-19 is sweeping through Houston, with the number of daily hospitalizations already reaching a point where only entire state totals for Florida, Texas and California are higher.

Yet even as Harris County Judge Lina Hidalgo is expected to announce today that she will return the county to the highest Covid-19 threat level and encourage unvaccinated residents to stay home, Houston’s retail sector continues to enjoy a strong rebound from the disruption of the pandemic.

Industry experts say that so far, the delta variant hasn’t affected that rebound, which reflects Texas' early reopening and lack of multiple hard lockdowns. But some believe that could change if things get bad enough.

“We haven't heard anything. But that doesn't mean that it's not coming,” Satya Inc. CEO Sunny Bathija said.

The delta variant has led to a dramatic surge of Covid-19 cases and hospitalizations in Texas. As of Aug. 3, there were 7,685 Texans hospitalized, up 45% from a week prior, and more than four times the number of people on July 3, according to the Texas Department of State Health Services.

In Houston, Texas Medical Center hospitals reported 1,624 people hospitalized for Covid-19 on Aug. 3, up 68% from a week prior, and nearly 25 times the number of people on July 5, according to the TMC. Those hospitals began moving to Phase 2 of their surge plan in late June, opening new units or converting regular beds to intensive care.

Experts from the University of Texas at Austin have estimated that Houston will surpass its prior Covid-19 hospitalization record, originally set in January, within just a few days.

Texas Gov. Greg Abbott lifted business capacity restrictions and the statewide mask mandate on March 10. Since then, he has doubled down on his reopening stance. Abbott banned local government entities, including public schools, from imposing mask mandates in May, unless Covid-19 patients made up 15% of local hospital capacity for seven straight days.

Another executive order in late July removed that requirement, banning local governments from imposing any capacity restrictions or mask mandates on businesses, even in areas that exceed the 15% hospitalization threshold.

Earlier this week, Houston Mayor Sylvester Turner issued a memo that bucked the governor’s order, requiring city employees to wear masks on city premises. In light of the surging number of cases and hospitalizations, some Houston companies are now re-evaluating the return to the office timeline. Brokers previously told Bisnow that for many firms, the Labor Day weekend marked the deadline for return. 

But for Houston’s retail sector, business appears to be continuing as usual. Satya Inc. owns and operates 15 suburban retail centers within the greater Houston area, and so far, Bathija hasn’t heard of any retail or restaurant tenants being forced to close or change their operations. However, feedback from restaurant tenants suggests slightly lower numbers of reservations in the past week or two, and there has been significantly more discussion about the delta variant and a growing preference for masks.

“The signs are changing on the doors from being optional if you're vaccinated, now to being encouraged. So people are getting that kind of jitters. And I'm seeing more people wearing masks all around,” Bathija said. 

Streetwise Retail Advisors Managing Partner Ed James said that he also hasn’t heard anything from his portfolio of Houston tenants yet, although his firm is expecting it, especially if masks and other restrictions are reintroduced.

“We have centers in Louisiana and while the numbers are really high, [including] hospitalizations, we have only heard about labor issues with people being out due to Covid,” James said.

As the delta variant continues to fuel cases and hospitalizations, local and state government officials across different areas of the U.S. are moving to reinstate mask mandates.

Los Angeles County reinstated its mask mandate on July 17, while Washington, D.C., brought back its own mask requirements on July 31. Earlier this week, San Francisco and six other Bay Area counties also announced they were reinstating a mask mandate, as did the entire state of Louisiana.

Evergreen Commercial Realty President Lilly Golden said that Los Angeles County’s decision to reinstate masks was the last straw for one of her clients, a small California-based restaurateur. Shortly after the order went into effect in mid-July, the client called Golden to say he was moving to Houston.

“He just told me, ‘I am ready. I'm packing up my dog, driving today from California to Houston, and I'd like to start looking at sites next week, can you put some sites together?’” Golden said. “I think it was just an act of frustration, but I think he's absolutely serious.”

Golden said that the client had been considering a move to Houston last year, but the latest mask mandate helped him make a final decision, as he didn’t want to keep dealing with fluctuating restrictions in California.

Texas’ reputation for being a pro-business environment with fewer costs, regulations and restrictions grew last year during the pandemic. Retail brokers previously noted there has been a significant uptick in the number of out-of-state retailers and restaurateurs looking to move to or expand in Texas.

Some restaurateurs, like H-Town Restaurant Group owner Tracy Vaught, have made efforts to protect staff and customers by making vaccines available to employees on-site. Last month, the company arranged for vaccines to be distributed at one of its locations, for any employee who wanted a shot but had not been able to get one.

Non-vaccinated employees must continue to wear a mask, and many vaccinated employees have also chosen to continue wearing masks, Vaught told Bisnow.

Pondicheri chef and co-owner Anita Jaisinghani said that for now, her restaurant is operating as normal, and masks are optional for both customers and staff. But she is continuing to watch for instructions from the mayor and will adjust operations accordingly.

“Honestly, I am not sure what else I can do,” Jaisinghani said.

Jessica Levine is the general manager of family-owned restaurant Jonathan’s The Rub. Levine oversees the location at Memorial Green, while her brother runs the original location at Hedwig Village. Right now, all unvaccinated staff are still required to wear a mask and employees must provide a completed vaccination card to not have to wear one.

Levine said her business is watching the news and taking the Centers for Disease Control and Prevention guidelines into account, as well as direction from national government officials. By the next manager meeting in two weeks, the company may require all staff to wear a mask, vaccinated or not. 

Depending on the severity of cases in the Houston area, Levine said her business may also reduce indoor dining capacity by 25% to 50%, and look at creating a larger to-go service to supplement income.

“We do not trust Gov. Abbott will put anything in place to protect our industry, employees or the public from this virus and go against his political agenda to not turn Texas blue. Therefore, restaurants will have to make their own decisions without guidance from state government officials,” Levine said.

Houston’s strong retail leasing activity has continued despite the recent surge in Covid-19 cases, which Golden said is because some business owners don’t consider it to be a long-term threat. 

“I think that … people are very anxious to open restaurants here, versus anywhere else in the United States. I think this is still a hot spot,” Golden said. “I think people think that [the delta variant] may be a problem here, but it will come and go.”

Bathija said that leasing activity has been strengthening in his portfolio since the beginning of the year, adding things were looking like they were returning to pre-pandemic levels. However, with the delta variant spreading, he is more concerned.

As cases and hospitalizations continue to tick up, James said that he thinks the delta variant is going to become a bigger issue than it is right now.

“I think this will be a bigger story in the coming months,” James said.