Food, Fitness, Entertainment Firms Will Save Houston Shopping Centers, Says InterFace Panel

HOUSTON — As brick-and-mortar retailers such as Sears, Macy’s and hhgregg continue to shutter stores throughout the country at a furious pace, Houston developers are rapidly warming to the idea of anchoring their shopping centers with restaurants, fitness centers and entertainment-based businesses.

Retail executives throughout the Houston area convened at the InterFace Houston Retail conference on April 18 to discuss the impact of this trend and others on the metro’s retail real estate market. David Luther, first vice president and district manager at Marcus & Millichap moderated a panel of five industry experts who addressed everything from the threat of e-commerce to parking wars between tenants.

In Houston, the rampant growth of e-commerce contributed to 1.3 million square feet of big-box space being returned to the market in 2016, according to CBRE.

In addition, the first quarter of 2017 saw net absorption of only 182,000 square feet.

The end result is that developers are being forced to repurpose shopping centers anchored by traditional big-box retailers. As such, they are increasingly turning to businesses that offer a lifestyle product or service to fill the void.

Larry Levine, president of Houston-based development firm Levcor Inc. and a conference panelist, noted that big-box closures actually represent good opportunities for property owners in urban pockets.

“When the retail environment changes, you want to be able to adapt to it right then and there,” Levine told and audience of more of 225 industry professionals at the Royal Sonesta Hotel. “If you’re in the heart of Houston and you’ve got great space and your Sears store goes out of business, that’s a win-win.”

The big losers, Levine added, are shopping center developers in the suburbs, because they lack the population and foot traffic to attract a food-, fitness- or entertainment-oriented anchor.

Total Wine and Dick’s Sporting Goods are among the companies that have backfilled big-box space vacated in Houston, according to CBRE.

What makes these firms different from Fresh Market or Sports Authority they replaced is their mass-merchandising approach to retail. According to Levine, these types of stores are less vulnerable to the e-commerce assault because their price points are low enough to compete with online retailers, and people want to be able to see and handle the products they sell firsthand.

“I think there’s still a need for the mass merchandisers — Ross Dress for Less, T.J. Maxx — those guys won’t be hurt as bad by the Internet,” he said. “These places acquire their products so cheap that it makes people want to come in to get the deals. Plus there will always be products that the Internet can’t really provide.”

Other emerging retailers include Austin-based dine-in theater Alamo Drafthouse, which is currently planning four new locations in Houston, and Florida-based fitness chain Orangetheory Fitness, which has grown to 12 Houston locations over the past couple years.

Still, these lifestyle retailers don’t come without problems. Panelist Dean Lane, a partner at retail development and brokerage firm Newquest Properties, points out that while lifestyle retailers generate ample traffic for their cotenants, the parking issues they create diminish their appeal.

“A lot of tenants have changed their tune,” said Lane. “Today, they would prefer to have a restaurant, gym or place of entertainment around them, as long as it doesn’t interfere with their parking. Grocery stores, in particular, are always in fear that these retailers will steal their parking.”

While there is a changing of the guard in Houston retail, the metro’s strong population growth has bolstered demand for space, driving the vacancy rate down to a two-year low of 5.3 percent, according to CBRE. Houston also has ample land still available for retail lease, according to panelist Charles Scoville.

“The 4.5 million square feet of retail space [under construction] is largely being built in places where communities are underserved, like along Grand Parkway,” says Scoville, COO of Houston-based developer Read King. “Retail is still a function of the right space in the right location, so there continue to be opportunities for us as markets change and evolve. We just have to find those niches.”

— Taylor Williams

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