Houston Retail Sector Demonstrates Resilience

BY BRANDI SMITH

Houston's retail sector has shown resilience in the face of economic uncertainty and pandemic-related disruptions. Retail tenants have remained in expansion mode in 2022 and 2023 so far, driven by continued demand for food and beverage and discount stores.

According to Cushman & Wakefield Managing Director Eric H. Lestin, new retail lease deals executed last year remained above the three-year pre-pandemic average for the second consecutive year, shrugging off persistently elevated inflation as well as concerns surrounding a looming recession and rising interest rates.

"Retail real estate’s post-pandemic revival has not let up. Fueled by shoppers’ and diners’ renewed enthusiasm for the in-person experience and retailers’ and restauranteurs’ optimism about long-term growth, tenants continue to seek out high-quality store locations amid limited supply," said Lestin, who leads Cushman & Wakefield’s Retail Services Group.

He added that Houston's long-term growth drivers, including strong population and household growth as well as affordability, are reasons for continued optimism and point to why the Bayou City continues to attract new residents and retailers. Lestin highlighted the largest leases were driven by tenants in fast-growing suburban locations, chasing demographic and economic strengths found in these areas. For example, he said, in the fourth quarter of 2022, H-E-B signed a 100,000-SF lease that will anchor Howard Hughes' Village Green at Bridgeland Central, a 23-acre mixed-use development within the 925-acre Bridgeland Central that will house office, retail, multifamily, dining, and entertainment space, at full build-out. Also, in the fourth quarter of 2022, Randall's supermarket signed a 66,000-SF lease in the Panther Creek Center in The Woodlands.

Despite the challenges posed by the pandemic, Houston has continued to attract new retail developments. Midway's East River project is a prime example.

"Phase One of East River is nearing construction completion, and planning has begun on phase two!" said Lacee Jacobs, Midway's Senior Vice President of Strategic Leasing + Advisory. "The earliest openings will be this Fall with the later happening in early 2024." East River aims to create a new "third place" for the community to gather and enjoy, according to Jacobs.

"We always focus on bringing uses and concepts that fill a need for the surrounding neighborhood," she said. "For East River, we are curating a collection of homegrown concepts, local and regional business owners who are very much trailblazers in their respective fields. East River presented a rare opportunity for us to intentionally seek out uses that feel authentic and unique – concepts the consumers will seek out."

Jacobs hopes that East River will enrich lives by providing a place for people to connect with each other outside of home or work that all neighbors can be proud of.

"It’s a place for the community to gather and enjoy an ice cream with their kids, grab a cup of coffee with a neighbor or just enjoy the outdoor pocket parks," she said.

East River's location along the Bayou makes the project even more special for Jacobs.

"I’m especially excited for people to experience this side of the downtown skyline. As the Bayou fronting buildings near completion, I continue to be impressed by the view and experience of being on the water," she said. "There really is nothing like it in Houston - for so long we have turned our projects and developments away from the Bayou. Unless you have been out there touring with us lately, you just have no idea what a dynamic spot this is."

Mixed-use developments are a common trend surrounding new retail projects in Houston, as are competitive socializing concepts.

“It has grown by 386% since the beginning of 2021, according to a new report in Cushman & Wakefield’s The Edge magazine,” shared Lestin. “The segment is grabbing the attention of landlords looking to breathe new life into underused spaces, especially in properties with large-format vacancies.”

He cited examples Puttshack and Flight Club, which secured sites in Houston before landing in Dallas, NYC and Austin. Lestin added that Activate Games, an active gaming experience, has signed a lease for their first Houston location.

“Competitive socializing venues tend to have a domino effect on the centers they occupy by attracting more foot traffic and increased sales at nearby businesses,” he said.

Houston's retail real estate market has shown remarkable resilience in recent years, thanks to its strong population and household growth, affordability, and pro-business environment. For those reasons, it is likely to remain a retail and business hub for years to come.