"The market is strong across the board," Richard Zigler,director of research for the firm and editor of the report, tellsGSR. "New development, most of which is pre-leased, is followingsuburban population growth in the Houston area, which has beenenormous in recent years. There are some vacancies in thelower-tier malls, and some of the former Kmarts and ServiceMerchandises are still empty, but on the whole, every segment ofthe market is strong."

The O'Conner report notes that strong quarterly absorptionacross all retail types has brought the demand in the first threequarters of the year to more than 5.2 million sf, the highestfigure for that period since 2000. Absorption is typically strongerin suburban areas, following residential developments, and beginsto soften closer to Houston proper. Only the near northwest marketrecorded negative quarterly absorption in Q304, with a minuscule6,848 sf returned to the market. Six other submarkets posted gainsin excess of 100,000 sf, led by the far southeast sector with303,400 sf absorbed.

Moreover, according to the report, overall retail occupanciesare at the highest levels since mid-2001, at 86.62%. All retailtypes except strip centers posted occupancy gains over the secondquarter of 2004, and over the same quarter last year. Strip centeroccupancy levels are down over the last year primarily due to thelarge volume of new construction, but, the report adds, as long asdemand for strip centers remains strong and outpaces construction,occupancy levels will catch up.