Jan. 24, 2018
By: Simmi Jaggi, senior vice president, JLL Houston
With strong projections for population growth and home sales, Houston retail will continue to thrive in 2018 – albeit at more sustainable levels than the past two years. That said, the retail sector is set to look much different in the future, thanks to the disruptive force of e-commerce.
The “evolution of retail” is causing end-users, developers and investors alike to rethink real estate strategies. From new creative developments in urban environments, to the rise of experience-based retailers, and innovation in the prototypes of soft goods stores, Houston retail is primed for transformation and innovation.
Tight urban environments demand creative developments
Limited urban land sites and general market tightness has retailers and developers exploring new options in Houston.
There is currently 3.3 million square feet of retail space under construction, approximately 70 percent of which is “general retail,” that is, retail not in a shopping center, power center or mall. With fewer big-box anchored power centers under construction, a new bastion of retail development could be in store for the market.
Rising land prices are making it difficult for retail developers and users to secure urban land sites that are available. Retail centers are under increasing pressure to compete with multistory developers whether multifamily, office or otherwise. As a result, the Houston market can expect to see more mixed-use and lifestyle centers that incorporate multiple uses into one development. These centers prove to be a win-win for tenants and consumers alike, as they allow multiple users to benefit from a location while creating the experiential destination that today’s consumers seek.
Entertainment-based retail to continue its rise
E-commerce is also driving a shift in shopping center mixes from predominantly soft goods to entertainment-concept focused. This is true from both a leasing and investment perspective, as buyers are wary of soft-goods-heavy centers.
Houston’s high population growth and diverse consumer base has made it a highly profitable location for entertainment concepts to put a stake in the ground. Pinstripes, Momentum Indoor Climbing, Emser Swim School, Spenga and Carvana are just some of the new-to-market retailers that have driven the metro’s leasing activity in recent quarters.
Even with Houston retail leasing activity decreasing to more sustainable levels, restaurants, boutique fitness and service-based retail have continued their expansions across the metro.
Not your grandma’s grocery store
Grocery operators have been capitalizing on Houston’s continued population growth, making Houston one of the highest growth markets for the grocery sector. Those stores were mostly focused in the dozens of master-planned communities that make up Houston’s suburbs. However, growth opportunities still exist as Houston’s urban core becomes increasingly dense. Grocery will continue to expand with residential growth, but expect grocers of both existing stores and new developments to focus on and invest in convenience.
Grocers are trying to keep up with shifting demand by making it easier for people to get what they want. Conventional grocers are investing more in prepared foods sections to stay relevant in the face of food delivery services and fast casual restaurants. Additionally, an increasing amount of retailers, in and out of the grocery realm, are using technology to streamline the customer’s experience while also cutting overhead. Expect more grocers to experiment with scan-and-go and mobile ordering technologies in 2018.
Land constraints are also leading to the evolution of the grocer’s urban footprint. As a result we’re seeing far more vertical developments than ever before. H-E-B broke ground on its first two-story location in the Houston area this past spring and the grocer announced plans for a second two-story location in Meyerland. Retailers will continue experimenting with smaller footprints and vertical layouts to be more amendable to mixed-use projects in urban cores.
Soft-goods retailers must maximize brick-and-mortar locations
Soft-goods retailers are also being forced to reconfigure stores amid the ecommerce revolution. As internet-based retailers impact sector dynamics, companies such as Verizon and Target are updating store configurations and footprints. It’s critical in this highly digital age that stores rethink their traditional footprints and create further opportunities to engage with customers.
This past fall, Target opened a new store prototype in the Aliana master-planned community southwest of Houston. The store houses two distinct shopping areas. One side is designed for the consumer looking for a pleasant experience with brighter lighting, an airier layout and a higher-end feel. The other is geared toward the consumer looking for convenience with quick services and grab-and-go items such as groceries and alcohol.
With land costs and rents on the rise across the Houston metro, maximizing physical space occupied is increasingly important for soft goods retailers.
Despite a normalizing of demand in 2017, retail market indicators look strong for the period ahead. Retailers continue to target both Houston and Texas as key components to U.S. growth strategy, and as the energy sector stabilizes, the metro will become even more attractive to these new-to-market concepts. Looking at the future pipeline, Houston is in for more creative development and retail innovation in the near future.
About the Author
Simmi Jaggi is a Senior Vice President and leads JLL Houston’s Land Brokerage Services group. Through a strategic, consultative approach, Simmi and her team assist clients with maximizing value in clients’ land dispositions. Additionally, Simmi represents buyers with their land acquisition needs, and is an expert in site and trade area analysis.