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Q1 2013 Houston Retail Market Research Report
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Q1 2013 Houston Retail Market Research Report

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  • 1. www.colliers.com/houston Q1 2013 | RETAIL MARKET MARKET INDICATORS Q1 2012 Q1 2013 CITYWIDE NET ABSORPTION (SF) -352,000 397,000 CITYWIDE AVERAGE VACANCY 7.2% 7.0% CITYWIDE AVERAGE RENTAL RATE $14.60 $14.68 DELIVERIES (SF) 197,000 154,000 UNDER CONSTRUCTION (SF) 561,000 585,000 1 Houston’s Retail Market – 0.6M SF Under Construction Houston’s retail market posted 397,000 SF of positive net absorption in the first quarter, which is significantly less than the 1.1M SF posted in the previous quarter, but is a positive gain from the -352,000 SF posted one year ago. Some of the tenants who opened new locations during the first quarter include Sprouts Farmers Market, Main Event, Mattress Firm, and Freddy’s Frozen Custard & Steakburgers. Although 154,000 SF of new retail space delivered during the first quarter, Houston’s retail vacancy rate decreased from 7.1% to 7.0% between quarters and from 7.2% over the year. Currently, there is 585,000 SF in Houston’s retail construction pipeline. Some of those projects include Whole Foods’ newest location in BLVD Place, Costco’s newest location in Sugar Land’s Telfair, and the L.A. Fitness located at 4400 N Shepherd Drive and W 43rd St. The citywide average quoted rental rate for all property types increased from $14.34 to $14.68 per square foot between quarters and from $14.60 one year ago. Houston retail rental rates vary widely from $10.00 to $70.00 per square foot, depending on location and property type and class. The Houston metropolitan area added 118,700 jobs between February 2012 and February 2013, an astounding annual increase of 4.5% over the prior year’s job growth. Further, Houston’s unemployment fell to 6.3% from 7.3% one year ago, which bolstered annual Houston area home sales by 17.1%. With continued expansion in the energy industry and a strong housing market, Houston’s economy is expected to remain healthy for both the near and long-term. ABSORPTION, NEW SUPPLY & VACANCY RATES RESEARCH & FORECAST REPORT 0% 2% 4% 6% 8% 10% 12% -500,000 0 500,000 1,000,000 1,500,000 2,000,000 Absorption New Supply Vacancy UNEMPLOYMENT 2/12 2/13 Houston 7.3% 6.3% Texas 7.2% 6.5% U.S. 8.7% 8.1% JOB GROWTH ANNUAL CHANGE # OF JOBS ADDED Houston 4.5% 118.7K Texas 3.3% 355.6K U.S. 1.7% 2.2M JOB GROWTH & UNEMPLOYMENT (Not Seasonally Adjusted)
  • 2. RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET 2 Rental Rates The citywide average quoted rental rate increased from $14.34 to $14.68 per SF NNN between quarters and increased from $14.60 over the year. Class A in-line retail rental rates vary widely due to location and center type. Recent quoted rates for unanchored strip centers range from $20.00 - $35.00 per SF (Class B and below can rent for $12.00 to $20.00 per SF) while power centers with three or more strong anchors range from $10.00 - $35.00 per SF. Lifestyle centers and newly constructed strip centers in Class A locations such as High Street, Uptown Park and The Vintage range from $40.00 - $70.00 per SF. Vacancy & Availability Houston’s retail vacancy decreased from 7.1% to 7.0% in the first quarter. By product type on a quarterly basis, neighborhood and community centers posted the largest vacancy rate decreases from 10.9% to 10.6% and from 6.5% to 6.3%, respectively. Strip centers, theme/entertainment, single- tenant, and mall vacancy rates remained unchanged between quarters. Power center vacancy rates saw the largest increase between quarters from 4.7% to 5.4%. Houston’s retail construction pipeline contains 585,000 SF, of which approximately 68% is pre-leased. First quarter deliveries totaled 153,540 SF. Absorption & Demand Houston’s retail market posted 397,000 SF of positive net absorption in the first quarter, much less than the 1.2M SF posted in the previous quarter. The opening of the Main Event in Stafford as well as the opening of the new Sprouts Farmers Market in the Cypress/Spring area contributed over 83,000 SF to the first quarter’s positive net absorption. Other notable tenants that moved into their space during the first quarter include: Arhaus Furniture, Concentra Health Services, Mattress Firm, Kinetic Furniture, and Party Supply Store as seen in the table to the right. HOUSTON RETAIL MARKET STATISTICAL SUMMARY Q1 2013 ABSORPTION Tenant SF Occupied Main Event 55,000 Sprouts Farmers Market 28,027 Arhaus Furniture 19,339 Concentra Health Services 10,054 Mattress Firm 7,500 Kinetic Furniture 5,000 Party Supply Store 4,800 Freeway Insurance 3,800 Best Friends Veterinary 3,750 Freddy’s Frozen Custard & Steakburgers 3,077 Rentable Area Direct Vacant SF Direct Vacancy Rate Sublet Vacant SF Sublet Vacancy Rate Total Vacant SF Total Vacancy Rate Q1 2013 Net Absorption Q4 2012 Net Absorption Class A Rental Rates (in-line)* Strip Centers (unanchored) 31,660,706 3,247,064 10.3% 14,888 0.0% 3,261,952 10.3% 17,913 34,865 $20.00-$35.00 Neighborhood Centers (one anchor) 68,661,126 7,111,141 10.4% 163,650 0.2% 7,274,791 10.6% 223,963 152,716 $20.00-$32.00 Community Centers (two anchors) 41,037,321 2,446,997 6.0% 113,311 0.3% 2,560,308 6.2% 111,506 128,330 $15.00-$30.00 Power Centers (3 or more anchors) 20,486,964 1,043,622 5.1% 71,190 0.3% 1,114,812 5.4% 2,657 113,299 $10.00-$35.00 Lifestyle Centers 4,022,334 266,852 6.6% - 0.0% 266,852 6.6% (8,899) 10,009 $40.00-$70.00 Outlet Centers 1,572,021 124,006 7.9% - 0.0% 124,006 7.9% (2,000) 351,115 N/A Theme/Entertainment 653,840 224,804 34.4% - 0.0% 224,804 34.4% - - $25.00-$35.00 Single-Tenant 64,367,262 1,531,251 2.4% 33,660 0.1% 1,564,911 2.4% 39,524 341,406 N/A Malls 29,481,876 1,756,850 6.0% 58,539 0.2% 1,815,389 6.2% 12,101 31,304 N/A Greater Houston 261,943,450 17,752,587 6.8% 455,238 0.2% 18,207,825 7.0% 396,765 1,127,074
  • 3. RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET SALES ACTIVITY Houston retail investment sales activity increased between quarters. In the first quarter 180 transactions were recorded, with a total dollar volume of approximately $3.2B, averaging $149 per SF with an average capitalization rate of 8.13%. Some of the more significant transactions that closed during the first quarter include: Phillips Edison & Company purchased the 148,963-SF Kleinwood Center from Charter Hall Real Estate, Inc. in March for $34.5M. The lifestyle center, located in the Northwest submarket, was 100% leased at the time of sale and was purchased as an investment. HEB and LA Fitness are the center’s anchor tenants. Fry Road Plaza, LLC purchased the 19,950-SF Fry Road Plaza, located in the Far Katy North submarket, from Texret, Inc. in March for $2M. Fidelis Realty Partners purchased the 273,274-SF Willowchase Shopping Center from Wheeler Real Estate Investment Trust in March for $14M. The community center, located in the Fairfield submarket, was purchased as an investment. Some of the center’s major tenants include Fiesta Mart, Tuesday Morning, Jo-Ann Fabrics, and Mattress Firm. LEASING ACTIVITY Houston retail leasing activity for first quarter 2013 totaled 943,426 SF, compared to 841,061 SF one year ago. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording only fourteen leases over 10,000 SF and five over 20,000 SF in the first quarter. A list of some of the leases signed during the first quarter are listed in the table below. 3 RETAIL SALE TRANSACTIONS Kleinwood Center 7306-7310 Louetta Rd, Spring, TX Northwest Ret Submarket RBA: 148,963 SF Built: 2003 Buyer: Phillips Edison & Company Seller: Charter Hall Real Estate, Inc. Sale Date: March 21, 2013 Sales Price: $34.5M Sales Price PSF: $232 Fry Road Plaza 3616 Fry Road, Katy, TX Far Katy North Ret Submarket RBA: 19,950 SF Built: 2006 Buyer: Fry Road Plaza, LLC Seller: Texret, Inc. Sale Date: March 13, 2013 Sales Price: $2M Sales Price PSF: $175 Building name/address Submarket SF Tenant Lease date Sugar Creek Village SC Stafford Ret 40,324 Fiesta Mart Jan-13 Belt West Center Westchase Ret 30,687 Project Cure & Med Benevolence Feb-13 11120 N I-45 Near North Ret 25,000 SuitMart Feb-13 Northwood Village Center North Belt/Greenspoint Ret 10,054 Concentra Health Services Mar-13 Belt West Center Westchase Ret 8,520 Golf Warehouse Feb-13 17685 SH 249 Jersey Village Ret 7,500 Mattress Firm Jan-13 Cypress Plaza Fairfield Ret 5,000 Kinetic Furniture Feb-13 Rose-Rich Shopping Center Far Southwest Ret 4,800 Party Supply Store Jan-13 16606 Stuebner Airline Rd Far North Ret 4,137 Spring Auto Glass Feb-13 Mason One Plaza Far Katy South Ret 4,000 Las Tarascas Mar-13 Golden Plaza Near West Ret 3,800 Freeway Insurance Jan-13 Allendale Shopping Center Near Southeast Ret 3,600 Zumba Fitness Jan-13 Clear Lake Shopping Center NASA/Clear Lake Ret 3,500 Market Seafood Jan-13 Q1 2013 Top Retail Leases
  • 4. RESEARCH & FORECAST REPORT | Q1 2013 | HOUSTON RETAIL MARKET COLLIERS INTERNATIONAL | P. Accelerating success. COLLIERS INTERNATIONAL | HOUSTON 1300 Post Oak Boulevard Suite 200 Houston, Texas 77056 Main +1 713 222 2111 4 LISA R. BRIDGES Director of Market Research Houston Direct +1 713 830 2125 Fax +1 713 830 2118 lisa.bridges@colliers.com