Houston Retail Taking It To The Next Level

CBRE Houston senior associate Brian Ashby likes to joke that retail got its name because it always comes at the tail end of the development cycle. Now is retail's time to shine. And with high occupancy and the cost of land across the city, retailers are looking upward. 

With such strong population growth it's no surprise Houston still tops the list of national retailers. Alamo Drafthouse, YouFit, H&M, Burlington Coat Factory and Academy are all active in Houston. The pent-up demand has Q1 2016 deliveries 96% pre-occupied. 

Inside the Loop, retail space is becoming extremely competitive. “For Lease” signs are nonexistent. Finding supply is all about connections. The lack of supply is driving up rents; Brian has seen some restaurants spaces go for a whopping $70/SF. Houston’s major vertical office development has inflated ground pricing in many areas across the city, particularly downtown.

The lack of supply and inflated pricing is driving retailers upward. Inside the Loop, Brian is seeing more and more multi-level retail developments, like Greenway Commons (pictured below), home to the Costco on Richmond. Brian hinted at additional multi-level developments in Washington Heights and Midtown. With the cost of dirt soaring, the multi-level retail trend is global. H-E-B has had success with multi-level stores in a few of its markets in Mexico. The grocery juggernaut's Meyerland store is in the process of converting to Houston's first multi-level grocery store, and rendered here is a multi-level H-E-B coming to San Antonio.

The new high-tech multi-level store is the latest barrage from H-E-B in Houston's ongoing grocery wars. Grocery-anchored developments are losing ground to neighborhood centers and freestanding retail, yet 35% of retail space under construction is still grocery-anchored. The aggressive expansion plans of H-E-B and Kroger are putting serious pressure on smaller specialty stores like Trader Joe's, Sprouts and Aldi. Many think the next grocery battleground will be EaDo. Brian doesn’t think there’s enough demand to justify the cost for a large supermarket, especially since the area is already being served by small local grocers.

With 200M SF of retail space at 94% occupancy and the 2M SF under construction already 89% pre-leased, retail is churning.