Q4 2013 Houston Retail Market Research Report

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Q4 2013 | RETAIL MARKET

HOUSTON RETAIL MARKET INDICATORS

Q4 2012 Q4 2013

CITYWIDE NET

ABSORPTION (SF) 1.1M 1.2M

CITYWIDE AVERAGE

VACANCY 7.3% 6.6%

CITYWIDE AVERAGE

RENTAL RATE $14.32 $14.73

DELIVERIES (SF) 756K 254K

UNDER

CONSTRUCTION (SF) 737K 947K

Houston’s retail market posted 1.2M SF of positive net absorption in the fourth quarter, bringing the years total to 3.0M SF. Some of the tenants who opened new locations during the fourth quarter include Wel-Farm Supermarket, Aldi, PetSmart, and CVS.

254,000 SF of new retail space delivered during the fourth quarter bringing the average citywide vacancy to 6.6%, which is 40 basis points lower than last quarter’s 7.0% vacancy rate. Currently, there is 947,000 SF in Houston’s retail construction pipeline, which includes a 71,400-SF Whole Foods Market located in Vintage Marketplace and a 53,000-SF Top Golf USA located on Spring Park Center Blvd, just east of I-45 N.

The citywide average quoted rental rates for all property types increased 0.7% between quarters from $14.63 to $14.73 per SF. Since Q4 2012, average rental rates have increased 2.7% from $14.32 to $14.73. Houston retail rental rates vary widely from $10.00 to $70.00 per square foot, depending on location, property type, and building class.

The Houston metropolitan area added 86,200 jobs between November 2012 and November 2013, an annual increase of 3.1% over the prior year’s job growth. Local economists have forecasted 2014 job growth to remain steady, adding between 68,000 and 72,000 jobs. Further, Houston’s unemployment fell to 5.6% from 5.8% one year ago. Houston area home sales increased 19.4% between November 2012 and November 2013.

ABSORPTION, NEW SUPPLY & VACANCY RATES

0%

2%

4%

6%

8%

10%

12%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Absorption New Supply Vacancy

Houston’s Strong Economy Helps Push Retail Vacancy Rates to Historic Lows

HOUSTON RETAIL MARKET RESEARCH & FORECAST REPORT

Houston

UNEMPLOYMENT 11/12 11/13 HOUSTON 5.8% 5.6%

TEXAS 6.0% 5.8%

U.S. 7.4% 6.6%

JOB GROWTH ANNUAL CHANGE

# OF JOBS ADDED

HOUSTON 3.1% 86.2K

TEXAS 2.5% 275.7K

U.S. 1.7% 2.3M

JOB GROWTH & UNEMPLOYMENT (Not Seasonally Adjusted)

RESEARCH & FORECAST REPORT | Q4 2013 | HOUSTON RETAIL MARKET

SALES ACTIVITY

Houston’s fourth quarter retail investment sales activity included 81 sales transactions. Total sales transaction volume totaled $334M and the average price per SF was $170. The average cap rate was 8.3%.

Several of the more significant transactions that closed during the fourth quarter are highlighted at left.

LEASING ACTIVITY

Houston retail leasing activity in the fourth quarter reached 1.5M SF, bringing the 2013 total to 5.6M SF. Overall, transactions under 10,000 SF comprised the largest group of retail leases, with the market recording thirteen leases over 10,000 SF and only two over 20,000 SF in the fourth quarter.

A partial list of the leases signed during the fourth quarter are listed in the table below.

COLLIERS INTERNATIONAL | P. 2

Shops at Clear Lake 13914 SH 3, Webster, TX NASA/Clear Lake Submarket

RBA: 10,425 SF Built: 2008 Buyer: Michael Vaupel Seller: Wile Interests, Inc. Date: November 26, 2013 Price: $3.1M or $300/SF Cap: 7.9%

Northchase Plaza 4415-4449 W FM 1960, Houston, TX FM 1960/I-45 Submarket

RBA: 116,414 SF Built: 1996 Buyer: Unilev Capital Corp. Seller: Azrieli Group Date: October 8, 2013 Price: $11.9M or $102/SF Cap: 8.8%

Shops at Wallisville 15634 Wallisville Rd, Houston, TX Channelview Submarket

RBA: 11,834 SF Built: 2008 Buyer: Baba Invs Wallisville LLC Seller: Edry-tx GP Date: December 16, 2013 Price: $2.7M or $227/SF Cap: 8.0%

RETAIL SALE TRANSACTIONS

Office Depot 1401 N Loop W Fwy, Houston, TX Inner Loop/Heights Submarket

RBA: 20,898 SF Built: 2008 Buyer: Orangestone Bevis LLC Seller: Cole REIT Date: December 18, 2013 Price: $3.7M or $178/SF Cap: 9.4%

Building Name/Address Submarket SF Tenant Lease date

Clear Lake Center NASA/Clear Lake 33,494 Sears Outlet Center Oct-13

Sherwood Village Southeast Outlier 15,300 Forgotten Angles Dec-13

Point Nasa Shopping Ceter NASA/Clear Lake 15,040 Harbor Freight & Tools Dec-13

Fairway Centre Southeast Outlier 10,000 Rue21 Nov-13

6516-6522 Westheimer Rd Near West 8,778 Sketchers Shoes Nov-13

4400-4424 North Fwy Near North 8,700 Ashley Stewart Dec-13

West Bellfort Schopping Center Southwest 8,640 Bee Busy Wellness Center Dec-13

Cypress Hollow Plaza Jersey Village 7,680 Junkyard Bar & Grill Oct-13

8700-8704 S Gessner Dr Southwest 7,349 Children's 1st Dental Oct-13

9401 Katy Fwy Near West 6,450 LongHorn Steakhouse Nov-13

8400 S Gessner Rd Southwest 5,000 Title Max Oct-13

Q4 2013 Top Retail Leases


RENTAL RATES

The citywide average quoted rental rate for all property types increased 0.7% from $14.63 to $14.73 per SF between quarters and 2.7% from $14.32 in Q4 2012.

Class A retail rental rates vary widely due to location and center type. Recent quoted rates for neighborhood centers, power centers and unanchored strip centers, range from $20.00 - $35.00 per SF while theme/ entertainment centers range from $25.00 - $35.00 per SF. Lifestyle centers and newly constructed strip centers in Class A locations such as High Street, Uptown Park and The Vintage range from $40.00 - $70.00 per SF.

VACANCY & AVAILABILITY

Houston’s retail vacancy fell 40 basis points between quarters to 6.6%, from 7.0% in the previous quarter. By product type on a quarterly basis, outlet centers

posted the largest decrease in vacancy, 110 basis points, followed by neighborhood centers decreasing 70 basis points and community centers decreasing 60 basis points. Mall vacancy dropped 40 basis points and strip center vacancy dropped 30 basis points. Both single tenant and power center vacancy fell 20 basis points. In contrast, theme/entertainment centers rose by 50 basis points and lifestyle centers increased by 30 basis points.

Houston’s retail construction pipeline contains 947,000 SF and fourth quarter deliveries totaled 254,000 SF.

ABSORPTION & DEMAND Houston’s retail market posted 1.2M SF of positive net absorption in the fourth quarter, bringing the 2013 total positive net absorption to 3.0MSF. Some of the tenants that moved into space during the fourth quarter are listed in the table below.

HOUSTON RETAIL MARKET STATISTICAL SUMMARY


Rentable Area

Direct Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

Q4 2013 Net

Absorption

YE 2013 Net Absorption

Class A Rental Rates

(in-line)*

Strip Centers (unanchored) 32,461,877 3,302,070 10.2% 1,000 0.0% 3,303,070 10.2% 187,460 350,703 $20.00-$35.00

Neighborhood Centers (one anchor) 68,503,893 6,786,622 9.9% 128,892 0.2% 6,915,514 10.1% 582,319 1,037,847 $20.00-$35.00

Community Centers (two anchors) 43,097,749 2,513,195 5.8% 94,012 0.2% 2,607,207 6.0% 170,251 567,644 $18.00-$30.00

Power Centers (3 or more anchors) 18,275,073 832,959 4.6% 23,483 0.1% 856,442 4.7% 44,487 213,128 $20.00-$35.00

Lifestyle Centers 3,204,008 131,819 4.1% - 0.0% 131,819 4.1% 8,587 1,108 $40.00-$70.00

Outlet Centers 1,899,333 274,219 14.4% - 0.0% 274,219 14.4% 20,014 13,596 N/A

Theme/Entertainment 752,640 269,931 35.9% - 0.0% 269,931 35.9% (41,118) (41,118) $25.00-$35.00

Single-Tenant 66,961,050 1,436,802 2.1% 64,554 0.1% 1,501,356 2.2% 129,160 649,914 N/A

Malls 29,531,180 1,637,406 5.5% 58,539 0.2% 1,695,945 5.7% 102,308 195,901 N/A

Greater Houston 264,686,803 17,185,023 6.5% 370,480 0.1% 17,555,503 6.6% 1,203,468 2,988,723

Q4 2013 ABSORPTION

Tenant/ Submarket

SF Occupied

Wel-Farm Supermarket Stafford 42,500

Habitat for Humanity ReStore Fairfield 29,946

PetSmart Far West 27,218

Northwest Assistance Ministries FM 1960/I-45 20,579

99 Cents Only Katy Far North 18,700

Aldi Southeast Outlier 18,146

CVS Pharmacy Far Katy South 14,741

Florence’s Furniture Channelview 11,697

DXL Men’s Apparel North Belt/Greenspoint

10,558


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COLLIERS INTERNATIONAL 1233 W. Loop South Suite 900 Houston, Texas 77027 Main +1 713 222 2111

LISA R. BRIDGES Director of Market Research | Houston Direct +1 713 830 2125 Fax +1 713 830 2118 [email protected]

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Q4 2013 Houston Retail Market Research Report