Houston's retail market is growing stronger and more diverse, after a relatively quiet period following the financial crisis of five years ago.
The U.S.'s fourth largest city didn't face a glut of retail space when the music stopped in 2008, like many other metropolitan areas. But the economic collapse caused a shift in the type of retail projects in development.
"During the recession, there were still grocery-anchored centers" under construction in areas where there was population growth, says Ian Pierce, director of corporate communications at The Weitzman Group, a Dallas-based commercial real estate brokerage firm. But development stopped in other types of retail development, mainly mixed-use centers with lifestyle tenants--retailers that sell to consumers' wants, rather than their needs--as disposal income declined, Mr. Pierce said.
Today, developers are resuming development of mixed-use projects, one sign of the market's rejuvenation, analysts say.
Phase II of Blvd. Place, a mixed-use development in the Galleria area, started construction last fall, according to the Houston Business Journal. The project will offer 211,000 square feet of retail, restaurant and office space, anchored by a 48,500-square foot Whole Foods. Phase I of the development, including 70,000 square feet of retail and office space, was completed in 2009.
At year-end 2012, the Houston retail market reported an occupancy rate of approximately 89.5 percent, compared to 88.9 percent at year-end 2011, according to The Weitzman Group. The retail market's stability is helped by the area's economy, which is one of the strongest in the country.
The performance of Houston's retail market is strongly tied to the housing market, analysts say. The retail slowdown was precipitated by a sharp decline in the number of single family homes built. Even today, a couple of years into the recovery, most of the new residential development in Houston involves multi-family, rather than single family homes, Mr. Pierce says.
According to Houston-based Metrostudy, a residential research firm, there were about 50,000 single family home starts in 2006, the market peak. In 2012, there were 23,480 single family starts, a 27 percent increase over 2011 and the highest tally since before the recession.
As the number of new rooftops slowed down, so did retail construction, Mr. Pierce says.
"Retail sales, across the board, have been fairly challenged in recent years," he said.
New retail space under construction is typically committed, usually based around a grocery-centered or discounter chain such as Sam's Club, Kroger or Walmart, he says. In 2012, for example, Walmart opened a 152,000-square foot supercenter anchoring a new project in the Heights, an urban neighborhood close to downtown. The project features approximately 60,000 square feet of small shop space--more than in many other recently-built grocery-anchored developments in Houston, Mr. Pierce says.
One of the submarkets in Houston in need of new retail is downtown, an area which has a worker population of about 140,000. In addition, there are 74,000 residents within a two-mile radius of the urban core, according to data tracked by the mayor's office.
"Downtown retail is being revitalized," says Angie Bertinot, director of marketing and communications for the retail development program at the Houston Downtown Management District. "One of the goals (of the program) is to prove there is demand for retail in downtown."
In a recent survey conducted by Bertinot's agency, 94.5 percent of respondents said they would shop downtown if they could find the right merchandise, among other things.
The impetus for conducting the survey was the closing in March of the 739,865 square-foot building that housed a Macy's department store and Macy's corporate offices. The reason for the closing was not poor sales, Bertinot says. The owner of the building wants to tear it down and may build an office tower in its place, she says. Macy's is now looking for an alternate site downtown, with the help of the Houston Downtown Management District.
Retailers are successful only when they are bundled together in a critical mass, Bertinot says, which is why her agency is looking at ways to lure other retailers to downtown, in addition to Macy's. Downtown can absorb at least another 350,000 square feet of retail, according to a downtown retail task force, set up by the mayor.