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Houston

Up 2 Places

2012 Rank: 13

2011 Rank: 15

Employment vs. Retail Sales


10%
Year-over-Year Change Employment Retail Sales

5% 0% -5% -10%

08

09

10

11*

12**

Retail Completions
6.0
Square Feet (millions)

4.5 3.0 1.5 0.0

ouston will lead the nation in hiring for the second year, supporting further improvements in retail vacancy, which has fallen for 10 consecutive quarters. Employers such as S&B Engineers and Constructors Ltd. will ramp up hiring efforts, with plans to fill 500 positions in the next three years, fueling consumer demand. Commercial real estate development will begin to pick up, particularly near employment hubs such as the Energy Corridor and the CBD. Some projects in outlying areas will also come online as developers move forward with large projects that are well leased. The first phase of Tanger Outlet Center, for instance, will bring 350,000 square feet of space online this year, with major retailers such as Banana Republic and Gap opening stores. This project will create 400 construction jobs and 900 permanent positions upon completion. Despite the surge in construction, favorable demographics and rising payrolls will sustain tenant interest, boosting occupancy and justifying rent growth, particularly in core locations. After adding jobs in all but a single month over the past two years, Houstons economy emerged from the recession on more sure-footing than any other metro, attracting investors to area retail assets. Large institutional buyers and REITs will continue to circle the market in search of top-tier properties with tenants secured under lengthy leases. The dearth of construction over the past three years is limiting the availability of the most sought-after assets, which could push institutional money down the quality chain. Elevated competition for second-tier properties or single-tenant deals with abbreviated leases could force private buyers to get creative this year. Investors with a tenant in tow may be able to execute trades on vacant standalone buildings owned by banks. Owner/users will also target dark properties in greater numbers, particularly as SBA loans become more prevalent.

Retail Operations Benefitting from Intense Job Market Recovery in Houston

08

09

10

11

12**

Asking Rent and Vacancy Trends


Asking Rent Vacancy

$17
Asking Rent per Square Foot

13% 12%
Vacancy Rate

$16 $15 $14 $13

11% 10%

2012 Market Outlook

08

09

10

11

12**

9%

2012 NRI Rank: 13, Up 2 Places. Houston improved two spots in the NRI thanks to strong job growth and above-average vacancy improvement. Employment Forecast: Employers will add 91,000 jobs this year, expanding payrolls by 3.5 percent. In 2011, 87,000 positions were created. Construction Forecast: Approximately 2.1 million square feet of retail space will come online in 2012, expanding inventory by 1 percent. Vacancy Forecast: Vacancy will plunge 70 basis points to 9.8 percent in 2012 after diving 80 basis points last year. Rent Forecast: Asking rents will rise 1.6 percent to $15.57 per square foot while effective rents gain 1.9 percent to $13.37 per square foot. Investment Forecast: Single-tenant properties with investment-grade tenants will trade in the low- to mid-6-percent range, while top grocery-anchored multi-tenant properties change hands in the low-7-percent area.
Construction: 2.1M s Vacancy: 70 bps t Effective Rents: 1.9% s

Sales Trends
Single-Tenant Multi-Tenant

$240
Median Price per Square Foot

$180 $120 $60 $0

07

08

09

10

11*

* Estimate

** Forecast

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., RCA

Market Forecast
page 24

Employment: 3.5% s

2012 BLACK TEXT VERSION Annual Report