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HOUSTON-Local market watchers are predicting gains will be made by year’s end in the retail sector as construction tapers and occupancy overall declines. Still, the region will continue to battle a double digit vacancy.

“Growth in suburban markets and vibrant consumer spending continue to buoy the Houston retail market,” says Richard Zigler, research director for O’Connor & Associates in Houston. He pegs the midyear vacancy at 14.2% in the 125-million-sf inventory. In contrast, a year-to-year comparison puts absorption at four million sf, its highest point in three years.

Marcus & Millichap’s latest report predicts this year will end with a 13% vacancy yet rent will grow 2.7% for an $18.86 per sf average. Michael Hoffman, regional manager in Houston for Marcus & Millichap tells GlobeSt.com that the city’s retail fundamentals will get an extra push by a 5.7% increase in investment sales, retailers’ expansions and a projected 25% decline in spec construction from last year.

In a press release, Hoffman says out-of-state investors “are being lured by yields that are significantly higher than those available in other markets, particularly those of the West Coast and Northeast.” Most out-of-state capital will be aimed at class A properties, prompting some local investors to focus on class B and class C acquisitions, he says. Suburban hot pockets are Katy, Sugar Land, the Woodlands and Pearland–all offering “the most opportunities” to investors seeking newer product to buy, the report says.

Marcus & Millichap estimates 2.6 million sf will come on line this year. The bulk of the new product is being developed or long-term leased by top-draw names like Bentonville, AR-based Wal-Mart Stores Inc. and Lowe’s Cos. Inc. of Mooresville, NC.

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