HOUSTON-Strong absorption rates were the main driver during the second quarter, according to a recent market report. The 554,000 sf absorbed in Q2 has taken the year-to-date tally to 2.48 million sf, with demand for neighborhood and strip center space gaining the most ground.

“Because of strong demand, we continue to see positive absorption and rents remaining pretty solid,” Richard Zigler, research director for the Houston-based O’Connor & Associates, tells GlobeSt.com. For the quarter, neighborhood centers outperformed all other retail categories, with 659,116 sf absorbed and followed by community centers with 93,004 sf.

It was the regional malls, however, that continued seeing red, posting a third consecutive loss of 316,608 sf. Occupancy rates also slumped on the regional mall level, dropping 1.45% to 87.94%. Rents remained flat: $3.06 per sf, on average. In the meantime, community centers took the lead in occupancy at 84.22% to register its highest level in three years while neighborhood centers hovered 85.81%.

Zigler says one factor contributing to the somewhat sluggish occupancy and absorption performance on the regional mall level is the loss of large tenants like Lord & Taylor and the soon-to-be closed Macy’s in the Galleria. “It’s unlikely they’re going to find another 250,000-sf tenant right away,” Zigler comments. “There’s not a whole lot of those floating around.”

Overall, however, Zigler predicts the numbers of the 130.5-million-sf inventory will continue to improve. “Several exciting new projects have been announced and we’re not seeing a lot of spec space in terms of new construction,” he says. “We’ve seen softness in the office markets while the apartment market is built up. So retail continues strong and it’s what’s driving the economy.”

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