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The Houston metro retail market is attracting retailers and investors from across the world because of its booming economy and impressive job growth, primarily in the energy and healthcare sectors. Since 2012, Houston’s local employment has grown, on average, around 4 percent year over year. As developers continue building and leasing large office and medical developments, notably in The Woodlands and Energy Corridor, retail space has been and will continue to be in high demand.
ExxonMobil is currently developing its 385-acre campus near the intersection of Interstate 45 and the Hardy Toll Road in The Woodlands. The development alone has more than 3,000 workers on site every day. With completion slated for 2015, nearly 10,000 workers will re-locate to the campus from the Houston area, as well as from Virginia and Ohio. Another notable development recently announced is ConocoPhillips’ 850,000-square-foot lease of Trammell Crow’s Energy Center Three and Four in the Energy Corridor. Energy Center Three, with expected occupancy in the second quarter of 2015, and Energy Center Four, with expected delivery in the second quarter of 2016, will house approximately 2,100 employees in the submarket.
In addition to ConocoPhillips, The University of Texas MD Anderson recently acquired approximately 35 acres from Wolff Cos. in Central Park, a 78-acre development located in the Energy Corridor. MD Anderson plans on developing a facility similar to the hospital’s 300,000-square-foot outpatient clinic in the Texas Medical Center. This facility may include medical and radiation oncology, diagnostic imaging and surgery facilities. Retailers are aggressively seeking space in these high-growth areas that boast strong demographics and high incomes — and they are willing to pay the price to be there.
The massive influx of jobs, along with record-breaking home sales, will cause the overall Houston retail market to experience positive absorption resulting in vacancy rates decreasing and rental rates increasing. Capital sources will continue aggressively competing for their share of the market, predominantly in the single-tenant, net-leased space, as well as for grocery-anchored shopping centers. For these asset types, interest rates will remain in the 4 percent to 5 percent range while loan to value will be underwritten in the 60 percent to 70 percent range. Cap rates will maintain currently low levels with the highest rated, best located assets compressing slightly. With improved property operations across the board, an aggressive lending environment and pent up capital chasing yield, owners and developers will continue listing retail assets for sale sustaining a healthy investment market.
— Andrew Peeples, associate director, Stan Johnson Co.