Houston's Dynamics Backing Retail Pipeline

"In today's market, typically large shopping centers aren't built until the developer obtains commitments from anchor tenants," says David Stukalin, president in Houston for Dallas-based Weitzman Group. "The demand-based approach means the market doesn't find itself in an overbuilt situation."

Stukalin tells GlobeSt.com that new space coming on line will be used to meet demand rather than increase vacancies. In a recent report from Weitzman, year-end 2006 occupancy was 88.5%, topping 2005's figure by 1.5%. Stukalin hasn't seen anything this quarter to indicate occupancies will trend downward.

According to Weitzman's report, the region added four million sf in 2006 to bring the inventory total to 133.5 million sf. And if the research is on target, construction during the remainder of 2007 will outpace 2006, a sentiment echoed by Houston-based Wulfe & Co.

Wulfe & Co.'s annual survey estimates an additional 4.2 million sf of retail space will come on line in the remaining months of this year. Its team says the total shopping space will be just shy of 140 million sf. In the Wulfe report, it's also predicted that the added space will keep occupancy close to its year-end 2006 figure of 86%.

An interesting trend in both reports was an increase in pad-site development. Wulfe's report expects more corner pharmacies will spring up at corners of busy intersections as the drug store industry continues on its competitive path. In addition, another 30 to 35 Starbucks and 20 to 25 bank branches are slated to open doors this year in the region.

Stukalin says pad sites are gaining in favor. "Some of the most active concepts today, which includes bank branches, freestanding drug stores and quick-service restaurants, require drive-through capacity, which is what pad sites offer," he says.

Stukalin points out that nothing has happened in Q1 to downplay any predictions of increased space, continued occupancy stabilization and high tenant demand. "Based on an economic level that is calling for continued job and population growth, as well as the level of retailer demand we're currently seeing, I think the remainder of 2007 will be a good year for the Houston retail market," he says.