Absorption Strong as Retail Projects Ramp Up

This year, the Houston metro will lead the nation in retail completions.

HOUSTON—Intense tenant demand continues to encourage retail developers in the metro. As multifamily and office builders have scaled back development, a number of mixed-use projects with large retail components are coming to fruition, resulting in pre-leasing activity remaining robust across the market. In addition, household formation is rising at a stable pace, encouraging several grocers to move forward with expansion plans in the metro, including H-E-B, Kroger and Wal-Mart, according to Marcus & Millichap‘s third quarter retail market report. 

This year, the Houston metro will lead the nation in retail completions as more than 3.2 million square feet of retail space is delivered. Vigorous pre-leasing for space underway will continue to benefit existing centers nearby, attracting burgeoning retailers. Though several Sports Authority and The Fresh Market locations have left large blocks of space vacant across the market, positive absorption will remain robust as expanding merchants pen new leases, says Marcus & Millichap. As vacancy remains at historically low levels, demand for space will permit the average marketed rent to rise, allowing assets’ net operating incomes to remain strong and support desired yields.