Houston’s retail success puts ‘more shiny things’ in front of consumers

Retail is becoming the star of Houston’s commercial real estate market, panelists said at BisnowHouston’s State of the Market event Tuesday.

Bisnow/Maddy McCarty

Tyler Martin of Weaver, Swapnil Agarwal of Nitya Capital, Armando Niebla of Colliers Engineering & Design, Dean Lane of NewQuest Properties, Travis Global of Brookfield Properties, Gabe Lerner of AOG Living and Thomas Nguyen of CBRE.

A shortage of new inventory has tightened the retail market to about 5% vacancy, making restaurant space hard to find and big-box bankruptcies and liquidations exciting opportunities. High occupancy rates create fierce competition, but panelists said it’s a good problem to have.

Retail rent growth is running at 25 to 30 percent across the board for NewQuest Properties, partner Dean Lane said during the event at Chasewood Technology Park.

“These businesses are, I wouldn’t say, in dire need, but there’s not a lot of product,” Lane said. “The old supply-demand works. »

The Greater Houston Partnership reported average rent of $20.87 per square foot in the first quarter, up 3.3% from $19.62 per square foot in the first quarter of 2023 and $18.97 per square foot in the first quarter 2022.

When Bed Bath & Beyond went bankrupt, those stores paid $9 to $12 in rent per square foot, Lane said. NewQuest could increase this rent up to $18 to $20 per square foot for the next tenant on an as-is basis, creating a significant return on a new transaction without much capital investment.

“When we get the product back now, we’re pretty excited about it,” Lane said.

And this will continue to happen as it becomes increasingly difficult for tenants to stand out and stay alive. It has become much more difficult to be a successful restaurateur compared to the performance of his former restaurant Peli Peli fifteen years ago, said Thomas Nguyen, restaurant practice leader in CBRE’s Houston office.

“It is more difficult to maintain the consumer’s attention. It’s harder to stay in rotation,” Nguyen said.

Bisnow/Maddy McCarty

Michael Marcon of InControl Technologies, Jeffrey Kaplan of Concept Neighborhood, David Hightower of Midway, Paul Coonrod of Pagewood and Marc el-Khouri of Perkins & Will.

There is more competition from a record number of restaurant openings and costs are rising, he said, adding that landlords need to better understand what tenant occupancy costs are.

Also in a departure from the opening of Peli Peli in 2010, restaurants must compete for the attention of influencers, which could shed a temporary spotlight on a new business and create a “honeymoon phase” that won’t last not, Nguyen said.

“You can’t expect the same consumers to come back over and over again, because they simply have more shiny objects in front of them on a daily basis,” he said.

To achieve long-term success, panelists said retailers must offer what today’s consumer is looking for.

“It makes things fun. There are a lot of new, innovative and fun things being introduced into the entertainment world,” Lane said. “I don’t think there will ever be another theater where you can’t have a cocktail.”

Today, movie theaters are adding bowling pins, arcades and other features to keep consumers interested. So even though renovating a theater is extremely expensive, that’s what it takes to be successful today, he said.