Retail Market HOUSTON
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HOUSTON RETAIL THIRD QUARTER 2009 Retail Market HOUSTON MARKET RESEARCH | THIRD QUARTER | 2009 Our Knowledge is your Property HOUSTON RETAIL THIRD QUARTER 2009 COLLIERS INTERNATIONAL | HOUSTON RilRetail MMkarket MARKET RESEARCH | THIRD QUARTER | 2009 Houston Retail Neighborhood Centers Lead Market Houston’s retail market continued to record weak fundamentals through the third quarter 2009 with net absorption, occupancy and rental rates falling below levels posted at this time last year. Certain retail categories, however, performed better than others under the current economic stress test. Neighborhood centers led the market with year-to-date positive net absorption of 875,062 sq. ft. through the third quarter, while all other retail categories posted less than 200,000 sq. ft. of net gains in occupied space. Among the most significant MARKET INDICATORS decreases in year-to-date negative net absorption were single-tenant retail properties with 328,422 sq. fft., fllfollowe dby community centers with 203,343 sq. fft.and malls with 160,815 Q3-08 Q3-09 sq. ft. With tough economic conditions pummeling consumers, neighborhood centers will likely continue to be counted among the most resilient retail categories through 2010. Quarterly Net Absorption 826,360 SF 447,965 SF As retailers continue to strategically position themselves to increase market share and win over increasingly value-conscious consumers, the local retail sector is experiencing an Overall NNN Rental Rate aggressive pricing war among key grocers led by Cincinnati-based Kroger and San Antonio- $16.00 psf $15.63 psf based H.E.B. Not to be left out, Randall’ s Food Markets (acquired by Pleasanton, California- basedSafewayin1999)hasannouncedplansthisyeartosignificantlyreducepricesasit attempts to rebrand itself from a high-end grocer to a more moderately priced store. Overall Vacancy 9.7% 10.3% Looking forward, Houston’s retail market is expected to remain soft with the local employment sector not likely to improve before the end of 2010. In the twelve months Year-to-date Deliveries ending in August 2009, Houston job losses totaled 95,100 or negative 3.6% job growth. 1.9 Million SF With few benchmarks available to measure what has come to be commonly referred to as the Great Recession, the duration of thecurrent economic sldlowdown remains thepivotal Under Construction question in considering the outlook for the commercial real estate sector. Major challenges 1.4 Million SF facing the overall market remain constrained credit, mounting job losses, and weak consumer spending. The interconnection of these key economic factors supports what many believe will be a slow recovery for both the overall U.S. economy and the retail sector. JOB GROWTH & UNEMPLOYMENT ABSORPTION, NEW SUPPLY & VACANCY RATES Aug-08 Aug-09 2, 500, 000 12% HOUSTON -3.6% Job Growth 2,000,000 11% 95,100 jobs lost 1,500,000 Unemployment 5.2% 8.4% 10% 1,000,000 9% TEXAS -2.8% Job Growth 500,000 295,400 jobs lost 8% Unemployment 5.3% 8.1% 0 -500,000 7% U.S. -4.4% Job Growth -1,000,000 6% 6,047,000 jobs lost 3Q-08 4Q-08 1Q-09 2Q-09 3Q-09 Unemployment 6.1% 9.6% www.collierstexas.com Absorption New Supply Vacancy COLLIERS INTERNATIONAL 1 HOUSTON RETAIL THIRD QUARTER 2009 Occupancy & Availability Absorption & Demand Houston’ s retail occupancy for all Houston’ s retail market recorded product types combined slipped 60 positive net absorption of 447,965 sq. basis points to 89.7 percent in the third ft. in the third quarter, an improvement quarter 2009, down from 90.3 percent fromthenegativenetabsorptioninthe at this time last year. This marked the second quarter. An overall slowdown in fifth consecutive quarter – since the tenant demand for retail space was third quarter 2008 – that occupancy reflected in the year-to-date positive net has decreased for the overall market. absorption of 629,357 sq. ft., far below Top Retail Lease 3Q 2009 By property type, several categories the 3.4 million sq. ft. of absorption Lunar Golf, Brazos Mall maintained occupancy levels above the gains recorded through the third Southeast Submarket 90 percent mark, while still recording quarter last year. significant year-over-year decreases. Lifestyle centers – open-air markets that Year-to-date gains in occupied space in Houston have typically catered to a were led by neighborhood centers with YTD 2009 RETAIL LEASES more affluent consumer – reported positive net absorption of 875,062 sq. occupancydown200basispointsto ft. In contrast, three key categories Target 91.8 percent inthethird quarter, from recorddded siifiignificant losses in occupidied Pearland Parkway Village 93.8 percent at this time last year. space through the third quarter May-09 133,055 SF Power and community centers also including community centers’ 203,343 posted lower occupancy at 92.7 percent sq. ft., single-tenants’ 328,422 sq. ft., JC Penney (from 95.4 percent) and 86.2 percent and malls’ 160,815 sq. ft., all in Teas Crossing (from 88.1 percent), respectively. negative net absorption. Jan-09 104,175 SF Notably, only two categories – outlets Major retail tenant move-ins in the Lunar GlfGolf and neighborh ood centers – recorddded third quarter contributing to the overall Brazos Mall slight occupancy increases to 97.9 positive net absorption included Sep-09 58,800 SF percent (up 120 basis points) and 87.4 Gerlands Food Town’s 52,580 sq. ft. percent (up 50 basis points) from one lease at El Dorado Shopping Center Gerlands Food Town year ago. With consumers spending (Clear Lake); Sports Authority’s 42,000 El Dorado Shopping Center expected to remain low while local job sq. ft. lease at Pearland Town Center Apr-09 52,580 SF losses continue to weigh down the (Pearland); Barnes & Nobles’ 35,091 economy, discount retail and grocery- sq. ft. lease at River Oaks Shopping Dustin Mount’s anchored centers may continue to lead Center (Midtown); Gallery Furniture’s Post Oak Center the market through next year. 22,500 sq. ft. lease at 9524 Westheimer Mar-09 47,136 SF (Westheimer) and Spec’s Liquors and Rental Rates Fine Foods’ 20,047 sq. ft. lease at 4102 FM 762 (Rosenberg). Ashcraft European Bakery Houston’s overall retail rental rate at Quail Creek Center Feb-09 45,000 SF $15.79 per sq. ft. NNN in the third Leasing quarter held steady from the previous quarter, but fell 2.5 percent from one Houston’s retail leasing activity reached Randall’s year ago. Key product types posted 1.5 million sq. ft. in the third quarter, Palmer Plaza larger decreases on a year-over-year, led the highest quarterly total this year. Jan-09 35,182 SF by community centers down 6.4 Weak activity in the first half of 2009 percent to $17.03 per sq. ft. NNN kept the year-to-date total of 3.7 million Family Thrift Center (from $18.20), and power centers down sq. ft. significantly below the 5.1 million Sharpstown Plaza 4.8 percent to $19.70 per sq. ft. NNN sq. ft. recorded through the third May-09 33,862 SF (from $20.69). Strip and neighborhood quarter last year, as tenants and centers also posted rate decreases to consumers struggle through a sluggish Dynamic Fitness $15.42 per sq. ft. NNN (down 2.0 economy marred by negative job Shadow Creek Ranch Town Center percent) and at $13.50 per sq. ft. NNN growth. See the column at left for a Jul-09 33,700 SF (down 1.7 percent). select list of 2009 retail leases. COLLIERS INTERNATIONAL 2 HOUSTON RETAIL THIRD QUARTER 2009 Houston Retail Sales Activity Year-to-date 2009 Investment Sales Retail sales activity remained weak in the Houston area as the ongoing credit crunch Total volume continues to limit the pool of potential investors in the market. Year-to-date through the $212.3 million third quarter, 297 retail properties with a combined 4.4 million square feet have been sold for # of properties: 297 a total dollar volume of $212.3 million and an average $136 per square foot. Total Sq. Ft.: 4,369,053 As the select list of recent retail sales below indicates, transaction activity continues to be Price/Sq. Ft.: dominated by smaller properties with less than 50,000 square feet, while private investors $136 comprise the majority of active investors in the Houston market. Average Cap: 8.5% SELECT HOUSTONSource: Costar RETAIL Comps SALES YEAR-TO-DATE 2009 SQ. FT. SALES PRICE / SUBMARKET/OCCUPANCY PROPERTY / ADDRESS YOC/REN BUYER / SELLER $ PER SQ.FT. SALE DATE Village Shops at Westheimer 45,372 MHK Realty of Texas $6.7 MIL Westheimer - 87% 12280 Westheimer 1984 Silver Crest Properties $147 September 2009 Mount Houston Square 173,080 Component Capital Group $9.7 MIL Homestead - 100% 11703-11743 US Highway 59 1974/1996 Centro Properties Group $56 July 2009 2 Property Sale Old Katy Rd 34,000 Robert Orkin Interests $3.0 MIL The Heights - 100% 7065 Old Katy Road 2,004 McKenzie Galleries & Commercial $88 June 2009 Center at Grand Lakes 24,552 MPI of Grand Lakes, Inc. $5.3 MIL South Katy - 93.5% S. Peek Road & Fry Road 2005 YHR Partners I $215 June 2009 Walgreens Pharmacy 12,749 Cole Capital Partners $5.1 MIL West Kingwood - 100% 8505 FM 1960 West 2003 UBS Real Estate Investments $403 March 2009 CVS Pharmacy 13,013 Sppgring TX Venture, LLC $3.8 MIL Willowbrook - 100% 8754 Spring Cypress 2005 Gulf Coast Commercial Group $290 June 2009 Former Tuscan Garden Oaks 33,250 Kempner Capital Management, Inc. $3.3 MIL Northwest - 100% 835 34th Street 2009 Thompson & Knight, LLP $98 June 2009 Retail Bank Bldg. 18,612 Stafford Properties Development Co.