What’s in store for Houston retail?

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May 18, 2016

By: Mark Raines, Senior Vice President, JLL Houston

Houston retailWhile office and multifamily markets in Houston have been negatively impacted by the effects of the prolonged downturn in oil prices, a more diversified economy than in the past has helped shield other Houston real estate sectors, retail being among them.

The long-term outlook for Houston retail real estate is strong, despite a minor correction that is anticipated for 2016.

Over the last five years, Houston has experienced notable growth in population and Gross Metropolitan Product (GMP). As the two biggest drivers for the demand of retail real estate, increases in population and gross production suggest increased demand for Houston retail CRE in the long run.

U.S. Census data placed Houston first in population gains among the largest U.S. metropolitan areas from mid-2014 to mid-2015. Houston grew its population base by 2.4 percent during the same time period. Furthermore, the city was one of only three U.S. metro areas that ranked in both the top 20 largest absolute population gains and the top 20 fastest-growing metros by percentage.

Despite these strong dynamics, the Houston retail market may see a slight correction in 2016 after a white hot year of construction, deliveries and absorption in 2015. Last year, Houston retail saw 3 million square feet of deliveries and 2.5 million square feet of positive net absorption. The market can expect to see a slight increase in vacancy in 2016 as absorption slows. However, long-term growth is expected to pick-up again in 2017, particularly with Super Bowl LI providing a boost to the local economy.

The impact of e-commerce

While some argue that e-commerce will diminish demand for brick and mortar stores, research shows that e-commerce has had less of an effect on retail than what is generally perceived in the market.

Research from the U.S. Department of Commerce shows that e-commerce sales account for less than 8 percent of total retail sales in the United States. There are, however, some segments of the retail industry that have been affected by e-commerce more than others. For instance, the music and video industries have been transformed by online purchasing. On the other hand, retail segments like clothing, consumer electronics and groceries have been minimally disrupted. Looking forward, a challenge for e-commerce will be the growing concern for online security and privacy. While e-commerce will continue to play an important role in the retail industry, research suggests that traditional brick-and-mortar stores remain an important and relevant part of the retail industry.

Mixed-use and lifestyle centers characterize retail growth

Today’s consumers increasingly identify dining as an important consideration in where they choose to shop. They are increasingly prioritizing multitasking as well. That being said, the growth that Houston can expect to see in retail will be in mixed-use properties, lifestyle centers and innovative redevelopments that combine dining, shopping, entertainment and social opportunities.

More and more consumers are looking for ways to mix shopping, socializing and other activities into single outings. Furthermore, they are looking to move into areas and neighborhoods that offer more than just residence. The commercial real estate industry should seek to capitalize on this core consumer preference.

In addition to addressing consumers’ desires for single-outing, multitasking experiences, lifestyle centers also address millennials’ preference for neighborhood or community shopping centers as opposed to enclosed malls and open-air shopping centers with big box stores.

This means one of the priorities for retail real estate going forward may be to create destination retail locations that include a distinct tenant mix reflective of the local character of a property and the consumers that surround it. Additionally, lifestyle centers have the ability to evolve and create value through intangibles like a sense of authenticity, community and belonging with their customers.

Further supporting the momentum of this trend in Houston is the demonstrated success of the city’s existing mixed-use developments. This, combined with an ever improving downtown scene, ongoing urban beautification projects, and population growth, position Houston and its retail sector for continued expansion in the future.

To learn more about retail trends, and to discuss the current and future state of retail CRE, visit with JLL Retail experts in booth C1001 at the International Council of Shopping Centers’ (ICSC) RECon 2016, May 22-25 in Las Vegas, Nevada.

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Mark Raines Houston retailAbout the Author

Mark Raines is a Senior Vice President and the Retail Brokerage lead for JLL Houston. In his role, Mark focuses on delivering strategic and innovative real estate solutions that produce superior results and create exceptional value for clients. Mark has more than 15 years of commercial real estate experience and is a member of the International Council of Shopping Centers (ICSC).

 

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