HOUSTON—Since oil prices first crashed in 2014, Houston's real estate market has been headed squarely in the wrong direction. Industrial and office values have suffered due to deep cuts in the city's massive energy market and home prices have followed suit, according to online real estate marketplace, Ten-X.

However, the city retains a lone bright spot in its retail market. While the sector struggles to capture any sustained growth on a national level, Houston retail jobs jumped 5.1% during the last year, the healthiest growth of the current cycle, while average rents soared 3% to an all-time high. Despite 1.7 million new square feet of retail space coming to market during 2016, vacancy rates remain unchanged and should descend in the years to come–an indicator that unlike much of the country, the city is actually adding new retailers at a healthy clip.

In the recent Ten-X US retail market outlook, the firm taps the top five buy and sell markets for retail real estate assets. Miami, Fort Lauderdale, Houston, Austin and Tampa are markets in which investors should consider buying retail assets. These markets concentrated in Florida and Texas have been able to defy national trends, primarily thanks to robust local economies fueled by consistent job and population growth.

Ten-X research expects that investors will reap healthy annual returns of 3.8% through 2018 and roughly 2.6% during the two years to follow. Houston continues to be an outlier and is poised for continued success during the next few years, says Peter Muoio, chief economist, Ten-X.

“Houston is doing well relative to retail, because the population continues to grow; in fact, at three times the US rate,” Muoio tells GlobeSt.com. “Those types of areas can withstand downturns due to the strength in population. And, there is a connection between housing and retail: population drives a healthy housing market which drives retail.”

In addition, Muoio says, the diversified economy in Houston, with healthcare and other non-oil-related sectors, is not as susceptible to the “downdrafts” as they were in previous oil crises.

However, the long-term forecast depicts a US retail sector that continues to stagnate, due in large part to trends in technology and consumer behavior that stand in the way of significant growth. The Ten-X Research report notes that e-commerce–the single largest secular threat to traditional retail–now comprises more than 13% of the industry's sales, resulting in “agonizingly slow” growth in retail fundamentals. That share has been rising for years and shows little signs of slowing, leading big-box retailers to either close or downsize many stores. Hedge funds have increasingly been shorting real estate investment trusts and bonds tied to shopping malls, adding even more fuel to the already powerful headwinds facing the sector.

“Consumers have been turning away from traditional retail for years, which is creating a more challenged and fraught landscape for investors. While healthy economic conditions and strong housing markets are fueling the sector in some areas of the Southeast and West, even those regions would bear the brunt of weakening absorption and falling rents that could push vacancies to recession-era levels in the event of any cyclical economic headwinds,” said Muoio. “The problems inhibiting retail's growth are anything but a passing phase, and the mounting shift toward online shopping ensures the sector will continue to face a steep climb on its road to recovery.”

In addition, Muoio says, the diversified economy in Houston, with healthcare and other non-oil-related sectors, is not as susceptible to the “downdrafts” as they were in previous oil crises.

Instant Insights /

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