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HOUSTON RETAIL THIRD QUARTER 2009

Retail Market
HOUSTON
MARKET RESEARCH | THIRD QUARTER | 2009

Our Knowledge is your Property


HOUSTON RETAIL THIRD QUARTER 2009

COLLIERS INTERNATIONAL | HOUSTON

R il Market
Retail M k
MARKET RESEARCH | THIRD QUARTER | 2009

Houston Retail Neighborhood Centers Lead Market


Houston’s retail market continued to record weak fundamentals through the third quarter
2009 with net absorption, occupancy and rental rates falling below levels posted at this time
last year. Certain retail categories, however, performed better than others under the current
economic stress test. Neighborhood centers led the market with year-to-date positive net
absorption of 875,062 sq. ft. through the third quarter, while all other retail categories
posted less than 200,000 sq. ft. of net gains in occupied space. Among the most significant
MARKET INDICATORS decreases in year-to-date negative net absorption were single-tenant retail properties with
328 422 sq. ft.,
328,422 f followed
f ll d by
b community centers with h 203,343
203 343 sq. ft.
f and d malls
ll with
h 160,815
160 815
Q3-08 Q3-09 sq. ft. With tough economic conditions pummeling consumers, neighborhood centers will
likely continue to be counted among the most resilient retail categories through 2010.
Quarterly Net Absorption
826,360 SF 447,965 SF As retailers continue to strategically position themselves to increase market share and win
over increasingly value-conscious consumers, the local retail sector is experiencing an
Overall NNN Rental Rate aggressive pricing war among key grocers led by Cincinnati-based Kroger and San Antonio-
$16 00 psf
$16.00 $15 63 psf
$15.63 based H.E.B. Not to be left out, Randall
Randall’ss Food Markets (acquired by Pleasanton, California
California-
based Safeway in 1999) has announced plans this year to significantly reduce prices as it
Overall Vacancy
attempts to rebrand itself from a high-end grocer to a more moderately priced store.
9.7% 10.3%
Looking forward, Houston’s retail market is expected to remain soft with the local
employment sector not likely to improve before the end of 2010. In the twelve months
Year-to-date Deliveries
ending in August 2009, Houston job losses totaled 95,100 or negative 3.6% job growth.
1.9 Million SF
With few benchmarks available to measure what has come to be commonly referred to as the
G
Great Recession, the
h duration
d off the
h current economic slowdown
l d remains the
h pivotall
Under Construction question in considering the outlook for the commercial real estate sector. Major challenges
1.4 Million SF facing the overall market remain constrained credit, mounting job losses, and weak consumer
spending. The interconnection of these key economic factors supports what many believe
will be a slow recovery for both the overall U.S. economy and the retail sector.
JOB GROWTH & UNEMPLOYMENT
ABSORPTION, NEW SUPPLY & VACANCY RATES

Aug 08
Aug-08 Aug 09
Aug-09 2 500 000
2,500,000 12%

HOUSTON -3.6% Job Growth 2,000,000 11%


95,100 jobs lost
1,500,000
Unemployment 5.2% 8.4% 10%
1,000,000
9%
TEXAS -2.8% Job Growth
500,000
295,400 jobs lost
8%
Unemployment 5.3% 8.1% 0

-500,000 7%
U.S. -4.4% Job Growth
-1,000,000 6%
6,047,000 jobs lost 3Q-08 4Q-08 1Q-09 2Q-09 3Q-09
Unemployment 6.1% 9.6% www.collierstexas.com
Absorption New Supply Vacancy

COLLIERS INTERNATIONAL 1
HOUSTON RETAIL THIRD QUARTER 2009

Occupancy & Availability Absorption & Demand

Houston s retail occupancy for all


Houston’s Houston s retail market recorded
Houston’s
product types combined slipped 60 positive net absorption of 447,965 sq.
basis points to 89.7 percent in the third ft. in the third quarter, an improvement
quarter 2009, down from 90.3 percent from the negative net absorption in the
at this time last year. This marked the second quarter. An overall slowdown in
fifth consecutive quarter – since the tenant demand for retail space was
third quarter 2008 – that occupancy reflected in the year-to-date positive net
has decreased for the overall market. absorption of 629,357 sq. ft., far below
Top Retail
T R il L Lease 3Q 2009 By property type,
type several categories the 3.4
3 4 million sq.
sq ft.
ft of absorption
Lunar Golf, Brazos Mall maintained occupancy levels above the gains recorded through the third
90 percent mark, while still recording quarter last year.
Southeast Submarket
significant year-over-year decreases.
Lifestyle centers – open-air markets that Year-to-date gains in occupied space
in Houston have typically catered to a were led by neighborhood centers with
YTD 2009 RETAIL LEASES more affluent consumer – reported positive net absorption of 875,062 sq.
occupancy down 200 basis points to ft. In contrast, three key categories
Target
91 8 percent in
91.8 i the
h third
hi d quarter, from
f recorded
d d significant
i ifi l
losses i occupied
in i d
Pearland Parkway Village
93.8 percent at this time last year. space through the third quarter
May-09 133,055 SF
Power and community centers also including community centers’ 203,343
posted lower occupancy at 92.7 percent sq. ft., single-tenants’ 328,422 sq. ft.,
JC Penney
(from 95.4 percent) and 86.2 percent and malls’ 160,815 sq. ft., all in
Teas Crossing
(from 88.1 percent), respectively. negative net absorption.
Jan-09 104,175 SF

Notably, only two categories – outlets Major retail tenant move-ins in the
Lunar Golf
L G lf andd neighborhood
hb h d centers – recorded d d third quarter contributing to the overall
Brazos Mall slight occupancy increases to 97.9 positive net absorption included
Sep-09 58,800 SF percent (up 120 basis points) and 87.4 Gerlands Food Town’s 52,580 sq. ft.
percent (up 50 basis points) from one lease at El Dorado Shopping Center
Gerlands Food Town year ago. With consumers spending (Clear Lake); Sports Authority’s 42,000
El Dorado Shopping Center expected to remain low while local job sq. ft. lease at Pearland Town Center
Apr-09 52,580 SF losses continue to weigh down the (Pearland); Barnes & Nobles’ 35,091
economy, discount retail and grocery- sq. ft. lease at River Oaks Shopping
Dustin Mount’s anchored centers may continue to lead Center (Midtown); Gallery Furniture’s
Post Oak Center the market through next year. 22,500 sq. ft. lease at 9524 Westheimer
Mar-09 47,136 SF (Westheimer) and Spec’s Liquors and
Rental Rates Fine Foods’ 20,047 sq. ft. lease at 4102
FM 762 (Rosenberg).
Ashcraft European Bakery
Houston’s overall retail rental rate at
Quail Creek Center
Feb-09 45,000 SF
$15.79 per sq. ft. NNN in the third Leasing
quarter held steadyy from the p
q previous
quarter, but fell 2.5 percent from one Houston’s retail leasing activity reached
Randall’s
year ago. Key product types posted 1.5 million sq. ft. in the third quarter,
Palmer Plaza
larger decreases on a year-over-year, led the highest quarterly total this year.
Jan-09 35,182 SF
by community centers down 6.4 Weak activity in the first half of 2009
percent to $17.03 per sq. ft. NNN kept the year-to-date total of 3.7 million
Family Thrift Center (from $18.20), and power centers down sq. ft. significantly below the 5.1 million
Sharpstown Plaza 4.8 percent to $19.70 per sq. ft. NNN sq. ft. recorded through the third
May-09 33,862 SF (from $20.69). Strip and neighborhood quarter last year, as tenants and
centers also posted rate decreases to consumers struggle through a sluggish
Dynamic Fitness $15.42 per sq. ft. NNN (down 2.0 economy marred by negative job
Shadow Creek Ranch Town Center percent) and at $13.50 per sq. ft. NNN growth. See the column at left for a
Jul-09 33,700 SF (down 1.7 percent). select list of 2009 retail leases.

COLLIERS INTERNATIONAL 2
HOUSTON RETAIL THIRD QUARTER 2009

Houston Retail Sales Activity


Year-to-date 2009 Investment Sales
Retail sales activity remained weak in the Houston area as the ongoing credit crunch
Total volume continues to limit the pool of potential investors in the market. Year-to-date through the
$212.3 million third quarter, 297 retail properties with a combined 4.4 million square feet have been sold for
# of properties: 297 a total dollar volume of $212.3 million and an average $136 per square foot.
Total Sq. Ft.:
4,369,053 As the select list of recent retail sales below indicates, transaction activity continues to be
Price/Sq. Ft.: dominated by smaller properties with less than 50,000 square feet, while private investors
$136 comprise the majority of active investors in the Houston market.
Average Cap:
8.5%
SELECT HOUSTON RETAIL
Source: Costar Comps SALES YEAR-TO-DATE 2009

SQ. FT. SALES PRICE / SUBMARKET/OCCUPANCY


PROPERTY / ADDRESS YOC/REN BUYER / SELLER $ PER SQ.FT. SALE DATE
Village Shops at Westheimer 45,372 MHK Realty of Texas $6.7 MIL Westheimer - 87%
12280 Westheimer 1984 Silver Crest Properties
p $147 September
p 2009
Mount Houston Square 173,080 Component Capital Group $9.7 MIL Homestead - 100%
11703-11743 US Highway 59 1974/1996 Centro Properties Group $56 July 2009
2 Property Sale Old Katy Rd 34,000 Robert Orkin Interests $3.0 MIL The Heights - 100%
7065 Old Katy Road 2,004 McKenzie Galleries & Commercial $88 June 2009
Center at Grand Lakes 24,552 MPI of Grand Lakes, Inc. $5.3 MIL South Katy - 93.5%
S. Peek Road & Fry Road 2005 YHR Partners I $215 June 2009
Walgreens Pharmacy 12,749 Cole Capital Partners $5.1 MIL West Kingwood - 100%
8505 FM 1960 West 2003 UBS Real Estate Investments $403 March 2009
CVS Pharmacy y 13,013 Spring
p g TX Venture, LLC $3.8 MIL Willowbrook - 100%
8754 Spring Cypress 2005 Gulf Coast Commercial Group $290 June 2009
Former Tuscan Garden Oaks 33,250 Kempner Capital Management, Inc. $3.3 MIL Northwest - 100%
835 34th Street 2009 Thompson & Knight, LLP $98 June 2009
Retail Bank Bldg. 18,612 Stafford Properties Development Co. $3.1 MIL South Katy - 100%
24250 Cinco Ranch Boulevard n/a The Ainbinder Company $167 March 2009
Corners Shopping Center 39,851 LBUBS 2004-C8 Retail Corners, LLC $2.1 MIL Stafford-Missouri - 31.1%
5425 Highway 6 1996 Hunt Partners Retail Group, LLC $53 June 2009
Retail Storefront (Spring) 24,415 Chas Schulz $2.1 MIL Spring - 100%
5503 FM 2920 1996 Donald & Bernadette Sanberg g $86 Mayy 2009
Retail Strip Center 32,507 Jind Interests, LLC $1.8 MIL Stafford-Missouri - 100%
4420-4440 W. Orem Drive 1962 Jatinder S. Sabharwal $54 January 2009

HOUSTON RETAIL MARKET SUMMARY

Direct Sublet Total Weighted


Vacancy Vacancy Vacancy 3rd Qtr Net Year-to-Date Avg. Rental
Rentable Area Direct Vacant SF Rate Sublet Vacant SF Rate Total Vacant SF Rate Absorption
p Net Absorption
p Rate NNN

Strip Centers 37,459,464 5,240,538 14.0% 46,041 0.1% 5,286,579 14.1% 21,859 200,320 $15.42

Neighborhood Centers 59,607,205 7,275,734 12.2% 229,363 0.4% 7,505,097 12.6% 318,033 875,062 $13.50

Community Centers 30,087,215 4,009,627 13.3% 140,778 0.5% 4,150,405 13.8% 151,186 (203,343) $17.03

Power Centers 17,836,231 1,163,706 6.5% 137,461 0.8% 1,301,167 7.3% 191,800 184,666 $19.70

Lifestyle Centers 3,360,613 273,978 8.2% 1,458 0.0% 275,436 8.2% (10,323) 50,106 $23.41

Outlet Centers 1,533,424 32,954 2.1% - 0.0% 32,954 2.1% (3,400) (10,554) $9.28

Theme/Entertainment 2,268,271 351,221 15.5% - 0.0% 351,221 15.5% (1,694) 22,337 $48.65

Single-Tenant 44,287,918 2,085,108 4.7% 53,207 0.1% 2,138,315 4.8% (62,730) (328,422) $12.94

Malls 23,620,346 1,564,853 6.6% 92,047 0.4% 1,656,900 7.0% (156,766) (160,815) $14.56

Greater Houston Retail 220,060,687 21,997,719 10.0% 700,355 0.3% 22,698,074 10.3% 447,965 629,357 $15.63

COLLIERS INTERNATIONAL 3
HOUSTON RETAIL THIRD QUARTER 2009

Development Activity – Select Projects Delivered YTD 2009 and Under Construction

CityCentre, bldgs. 1-2, 13 (left)


800 Town & Country Village
270,899 Sq. Ft. - 87.7% Leased
Est. Delivery: December 2009
Developer: Midway Company

BlvdPlace (right)
3 & 4 Boulevard Place
205,000 Sq. Ft. - 3.0% Leased
Est. Delivery: 2010-2011
Developer: Wulfe & Company

River Oaks Shopping Center Kirby Commons


2030 West Gray Street 7929 Kirby Drive
61,172 Sq. Ft. - 60.7% Leased 38,156 Sq. Ft. - 52.4% Leased
Delivered: August 2009 Delivered: June 2009
D l
Developer: W
Weingarten
i Realty
R l D l
Developer: Si
Simmons Vedder
V dd

Victory Lakes Town Center Waterside MarketPlace


2620-2850 Gulf Freeway Grand Parkway at Mason Road
170,252 Sq. Ft. - 62.6% Leased 147,917 Sq. Ft. - 97.6% Leased
Delivered: February 2009 Delivered: May 2009
Developer: NewQuest Properties Developer: Regency Centers

COLLIERS INTERNATIONAL 4
HOUSTON RETAIL THIRD QUARTER 2009

HOUSTON RETAIL PROJECTS UNDER CONSTRUCTION

Estimated
Submarket Property Name Address RBA % Leased Developer Name Delivery
Memorial East CityCentre, bldgs. 1, 2, 13 800 Town and Country Village 270,899 87.70 Midway Companies Nov-09
Galleria Blvd Place 3 & 4 Blvd Place 205,000 2.71 Wulfe & Co. 2010-2011
River Oaks West Ave, bldgs. A,C, D1, D2 Kirby Dr @ Westheimer Rd 195,835 11.60 Urban Partners, Inc. Dec-09
Rosenberg Kroger's (Brazos Town Center II) 24400-24502 Commercial Dr 134,200 100 NewQuest Nov-11
Cypress Fairway Point, bldgs. A,B,C,D,E 15103 Mason Rd 80,000 0 Fairfield Village Community Jan-10
Cypress Cypress Village Station Skinner Road & Highway 290 79,550 100 NewQuest Jun-10
Lake Jackson Brazosport Village 410-426 Plantation Dr 56,102 95.37 Chainlinks Retail Advisors 2010
Washington Boulevard Washington Centre 4601 Washington Ave 47,922 47.73 Washington 4600 Ltd Dec-09
g Land
Sugar Kensington
g Commons 16305 Kensington
g Dr 33,800
, 0 Shah Companies
p Dec-09
South Katy Best Buy (Shops at Bella Terra) Grand Parkway & Westpark Tollwa 30,067 100 Moody Rambin Dec-09
Baytown Eastchase Shopping Center Eastchase St & Garth Rd 30,000 0 Moseley Commercial Real Estate Jan-10
Hobby 12941 Gulf Freeway Center 12941 Gulf Fwy 24,831 71.81 Jacob White Construction Jan-10
Washington Boulevard 3939 Washington 3939 Washington Ave 22,800 0 Apex Group Dec-09
Sugar Land Lake Pointe at Sugar Land 1611 Hwy 6 22,590 0 The Mody Group Ltd. Jan-10
Clear Lake Laurel Bay Center FM 2094 @ Lighthouse Blvd 22,400 70.98 The Retail Connection Dec-09
Clear Lake 161 North Highway 35 Center 161 North Highway 35 20,466 100 Off Corner Texas Ltd. Jan-10
Hobby Cullen Commons II 12805 Cullen Blvd 20,000 42.5 Cullen Commons Dec-09
Cypress Coles Crossing Shopping Center III Spring Cypress 19,880 16.93 Interra Properties Dec-09
Spring Louetta North Retail Center 1614 Louetta Rd 18,000 16.39 ORR Commercial Nov-09
Stafford-Missouri City 12615 South Gessner Retail 12615 S Gessner Rd 15,000 100 Seyed Deen Jun-10
North Katy Walgreens (Katy Main Street) 25620 Pin Oak Rd 14,820 100 Woodcreek Development/BPI Realty Dec-09
Stafford-Missouri City The Shoppes at Sienna Plantation Highway 6 & Sienna Parkway 13,115 0 Prosperity Investments Mar-10
Rosenberg Cracker Barrel (Brazos Town Center II) 23801 South West Fwy 10,300 100 NewQuest Nov-09
Total retail under construction in projects listed above 1,387,577
Grand total retail under construction (including projects not listed) 1,440,157

HOUSTON RETAIL DELIVERIES YEAR-TO-DATE 2009

Submarket Property Name Address RBA % Leased Developer Built


Clear Lake Victory Lakes Town Center 2620-2850 Gulf Freeway S 170,252 62.58 NewQuest Feb-09
South Katy Waterside Marketplace Grand Parkway & Mason Rd 147,917 97.60 Regency Centers May-09
Pearland Target (Pearland Parkway Village) 8503 N. Sam Houston Parkway 133,055 92.18 Plaza at Pearland Village Ltd. May-09
Jersey Village LA Fitness 9246 W. Sam Houston Parkway 128,033 100 Hong Du American Investment Sep-09
East Kingwood West Lake Crossing 7510 W Lake Houston Pkwy 78,085 100 Atascocita Commons Ltd. Mar-09
Memorial West BP Childcare Center 540 Westlake Park Blvd 74,708 100 Westlake LP Jan-09
Midtown River Oaks Shopping Center 2030 West Gray Street 61,152 60.70 Weingarten Realty Aug-09
North Katy Mission at Katy Mills 25100 Katy Mills Dr 58 602
58,602 1 03
1.03 Option 1 Realty Group Mar-09
Pearland Parks At Boulder Creek 15055 Pearland Pkwy 48,400 66.94 JEFCO Development Corp Feb-09
Tomball Sears Home Appliance (Tomball Marketplace) 14512 FM 2920 43,332 25.20 Weingarten Realty Jan-09
Spring Sawdust Shopping Center 525 Sawdust Rd 40,000 100 DMA MC Investments Feb-09
West University Kirby Commons 7929 Kirby Dr 38,156 52.83 Simmons Vedder & Company Jun-09
Cypress Cypress Village Station 25282 Northwest Freeway 35,317 100 NewQuest Sep-09
Rosenberg Grand Parkway & Hwy 59 19875 59 Hwy 35,214 25.70 KM Realty Advisors Feb-09
Pearland Shadow Creek Centre 11901 Shadow Creek Pkwy 35,000 48.60 First Brazoria Capital Funding Jun-09
River Oaks Greenway Commons 3830 Richmond Ave 34,848 54.70 Trammell Crow Company Mar-09
Northwest Former Tuscan Garden Oaks 835 34th St 33,250 100 Titus, Inc. Jun-09
Pasadena Deer Park Center 4200 Pasadena Blvd 30,074 0 Smithco Development Jun-09
Pearland Shadow Creek Marketplacep Shadow Creek Pkwyy & Hwyy 2 29,545 0 Gulf Coast Commercial Group p Jan-09
Tomball Saddlebrook Plaza 25201 Kuykendahl 28,000 0 Sumkin Development Mar-09
Friendswood Friendswood Park Plaza 907 S Friendswood Dr 27,000 77.41 Crystal Creek Developers Jun-09
Tomball Tomball Marketplace - Shops F 14223 FM 2920 26,880 0 Weingarten Realty Jun-09
La Porte Brittany Plaza 1610 Brittany Bay Blvd 24,000 77.10 Wulfe & Co. Feb-09
The Woodlands Market Street at The Woodlands 9595 Six Pines Road 24,000 2.50 Kimco Realty Sep-09
Rosenberg Goldshire Plaza 0 FM 1640 Rd 23,010 100 Simron Properties LLP Feb-09
Northwest North Houston Rosslyn Retail 8511 N Houston Rosslyn Rd 22,000 100 Afie & Ben Investments Feb-09
Memorial West 14520 Briar Forest Retail Center 14520 Briar Forest Drive 22,000 63.40 Thybach Builders Jun-09
Memorial East CityCentre, bldg. 9 800 Town and Country Village 21,000 100 Midway Companies Jun-09
Alief Apple Dentists 13194 Bellaire Blvd 20,500 100 Elevia Inc. Feb-09
Fall Creek Park Lakes Landing, bldg. C 4801 Wilson Rd 20,102 83.00 Read King Commercial Jan-09
Th Woodlands
The W dl d T h l
Technology Pl
Plaza att R
Research
hFForestt 4223 R
Research hFForestt D
Dr 20 000
20,000 37 00
37.00 Th Woodlands
The W dl d L LanddDDevelopment
l t J 09
Jun-09
North Katy PetSmart (Shops at Bella Terra) Grand Parkway & Westpark Tollwa 20,000 100 Moody Rambin Sep-09
Total retail projects delivered year-to-date listed above 1,728,522
Grand total retail projects delivered year-to-date including those not listed above 1,920,174

COLLIERS INTERNATIONAL 5
HOUSTON RETAIL THIRD QUARTER 2009

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HOUSTON RETAIL THIRD QUARTER 2009

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