After Hurricane Harvey made landfall on the Texas Gulf Coast, the storm’s impacts on commercial real estate were most immediately felt in the single- and multifamily spaces.
As the recovery effort got underway, it became clear that some office buildings had been damaged, driving down occupancy in that sector, while demand for industrial materials and space rose.
Perhaps because retail occupancy in Houston — which most recently clocked in at 94.6 percent, according to CoStar Group — has been strong throughout the oil downturn, or because most store closures stemmed from employees being unable to get to work, the storm’s impacts on the retail sector have been somewhat trickier to measure.
Whatever the case, nearly four months after the storm, retailers in certain industries are seeing their sales figures climb dramatically, and without help from the holiday shopping rush.
Grocers Lead the Way
The grocery business — a form of brick-and-mortar retail thought to be somewhat insulated from e-commerce — has been at the forefront of retail segments seeing an uptick in sales following Harvey. Residents experiencing power outages and damaged refrigerators generated healthy and immediate demand for groceries.
Ronnie Miranda, NewQuest Properties
“Grocers were particularly impacted by Harvey, and in the aftermath it wasn’t unusual to see lines wrapped around their buildings,” says Ronnie Miranda, director of asset management for NewQuest Properties, a full-service retail firm. “Several grocers experienced triple-digit sales growth during that time.”
Tight retail occupancy in Houston, plus rising land costs, have forced some newcomers to the grocery business to spring for vertical, multi-level stores. The same holds true for newly constructed or leased locations for established players in the grocery game. Ultimately, this trend helped some stores avoid ground-level water damage.
H-E-B, Houston’s leading grocer by market share, only closed five stores following Harvey. The chain’s closest competitor, Kroger, reopened all but six of its 110 Houston-area stores shortly after Harvey’s rains subsided.
Other Sectors Benefit
Home goods and hardware retailers have reaped major financial benefits from cleanup projects associated with water damage to more than 70,000 housing units.
Jazz Hamilton, CBRE
“Harvey only affected a small percentage of real estate in Houston — about 5 percent of product,” says Jazz Hamilton, first vice president of CBRE’s retail brokerage division. “Since then, companies like Lowe’s and Home Depot have seen their sales skyrocket.”
Atlanta-based Home Depot reported sales of approximately $25 billion during the third quarter of 2017, an 8 percent increase from the same period in 2016. North Carolina-based Lowe’s reported sales of about $16.8 billion for the third-quarter of 2017, up from $15.7 billion during the third quarter of 2016.
In addition, Hamilton adds, retailers that specialize in appliances and soft goods — clothing, bedding, decorative fabrics — experienced strong sales growth in the aftermath of Harvey.
The automobile industry has also seen a surge in sales following Harvey, which destroyed somewhere around 400,000 vehicles in Texas. According to Fox Business, sales of new vehicles rose by 109 percent during the first three weeks of September, just after the storm hit. And according to a recent TexAuto Facts Report, sales of new vehicles increased by an additional 41 percent from September to October.
Larry Levine, Levcor
“The car business is on fire right now because it represents a retailer that traffics in a basic necessity. In contrast, your stores that sell luxury items aren’t doing as well,” says Larry Levine, president of Houston-based retail development firm Levcor Inc. “It’s the retailers in the standard merchandising space that are really thriving.”
While natural disasters have a way of jump-starting sales for certain retailers, they also have a tendency to weed out the weak. Despite very limited space, tenants whose stores took damage and had to relocate were welcomed into existing centers — in some cases.
“The agile retailers responded to Harvey with extended hours and discounts,” says NewQuest’s Miranda. “Space was made available for tenants that were worth having, despite it being a tight market. That’s a function of getting the best tenants into centers.”
— Taylor Williams