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HOUSTON-Houston’s retail market is the strongest of all commercial real estate sectors with vacancy at its lowest level since 2001 and absorption at its highest point since 2000.

Next year will be another good year for Houston’s retail sector, but don’t expect absorption to be as strong since new construction levels will decrease, says Richard Zigler, principal of local research firm O’Connor & Associates. “The market looks good for 2005,” he tells GlobeSt.com.

So far this year, more than 3.5 million sf of retail space has been absorbed, according to O’Connor & Associates latest Houston report. Zigler says he expects about three million sf will be absorbed in 2005, predicting new construction will dip to less 2.5 million sf. This year, about 3.5 million sf of retail space delivered.

“I think development is going to slow down a bit because most of the retailers that are driving the expansion are starting to pull back,” Zigler says. “How many more Home Depots can you build? A lot of the prime locations are taken.”

That is not to say that there aren’t several retail projects in the planning stages or already underway. Houston-based NewQuest Properties Inc., for example, is starting a project in the fast-growing suburb of Rosenberg. The Town Center of Richmond/Rosenberg will be similar in size and scope to the firm’s recently completed Sherman Town Center, which boasts about 700,000 sf of anchor, small shop and pad space. Located along the west side of US Highway 59 between FM 762 and Reading Road, the center sits in the middle of trade area that’s experienced 33.5% growth in households over the past four years.

Overall, the Houston retail market, which is nearly 130 million sf, is about 87% occupied, the highest level since mid-2001, according to Zigler. Despite the increased occupancy, rental rate growth was flat this year at $18 per sf to $23 per sf. And, he does not expect rental rates to increase in 2005.

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