How Service Retail Is Stabilizing Houston’s Shopping Centers

By Jason Baker, principal at Baker Katz

If you’re only following the national headlines, retail real estate can seem like it’s still defined by store closures and disruption. That’s still part of the story, but on the ground in Houston, the picture is more balanced.

Fundamentals remain strong and occupancy remains high across the market. Even as new projects reach completion and new space comes on line, demand continues to keep pace. When space becomes available, it doesn’t sit for long — often with multiple deals competing for a single vacancy.

What’s changing is what types of retailers are taking the space. That shift is just as important as the strength of the market. Service-oriented retail, in particular, is emerging as a stabilizing force in Houston.

From Goods to Services

According to recent data compiled by CoStar Group and analyzed by The Wall Street Journal, for the first time, service-oriented tenants now occupy more retail space nationally than traditional goods-based retailers. In Houston, that trend is clear in leasing activity.

A significant share of the leasing activity today is driven by service categories such as health and wellness, medical, med spas, fitness, beauty and pet care. These are the tenants actively expanding and, in many cases, competing for the same spaces.

There’s a clear example of how this is playing out. Brian Finnegan, CEO of New York City-based retail REIT Brixmor, recently shared in The Wall Street Journal that his team subdivided a 10,200-square-foot former liquor store in Philadelphia into four smaller units: an animal hospital, facial spa, stretching studio and nail salon. Those four tenants are generating about 20 percent more rent than the previous user.

Fitness is a strong example. At Baker Katz, we’re currently representing [solidcore], a fitness concept offering high-intensity, low-impact workouts that has been very active in Houston. It’s a service-driven concept that is entering high-quality projects across the market.

“We’re seeing strong demand in Houston from members and potential members who are prioritizing strength as part of their routine,” says Joshua Rainey, senior director of real estate and growth at [solidcore]. “As we grow in this market, we’re focused on opening in locations that are convenient and easy to incorporate into weekly routines, because consistency is where real progress happens and community is built.”

Tenants like [solidcore] are commanding strong deals and often require meaningful investment within their spaces, from build-out to soundproofing. Landlords are willing to make those investments because of what these users bring to their projects. In many cases, service tenants are as attractive — if not more so — than traditional retail anchors.

The reason comes down to frequency. Traditional retail can still perform well, but it tends to be more occasional. Consumers might visit a clothing store once a month or a big-box retailer every few weeks. Service tenants are different. They create routines and bring people back multiple times a week, whether it’s for a fitness class, medical appointment, grooming service or pet care.

For the shopping center, that translates to steady traffic throughout the week, not just peak periods. That consistency is a big part of why service-oriented tenants have become so valuable — they help smooth out traffic patterns that have historically been uneven in retail.

A More Resilient Model

For years, grocery-anchored centers have been among the most desirable investment types, not just in Houston, but nationally. That’s still true, driven by the resilience and frequency grocery brings. What’s changed is how service retail complements the grocery sector.

Grocery stores bring people in on a regular basis. Service tenants increase how often they come back, and in some cases, drive even more frequent visits. From an investment standpoint, that combination is powerful for long-term performance.

There’s a clear difference in how assets are being viewed depending on whether they have that daily-needs component. Projects without a grocery anchor or strong service tenancy tend to move slower. Once that element is in place, interest picks up.

A “healthy” center today is straightforward — it’s a full parking lot. Landlords and developers are focused on getting the right mix in place to drive consistent, repeat visits.

Service Leads Early in Growth Corridors

One of the more interesting places this is playing out is along Houston’s major growth corridors. The Grand Parkway, in particular, has become one of the most active areas for retail development in the country.

Completed in 2023, the 184-mile loop is now the outermost of Houston’s three rings and is well positioned to support the next wave of retail, services and job growth across the region’s expanding suburbs and exurbs.

It may seem counterintuitive, but it reflects how people actually use these areas. As soon as rooftops go up, demand follows, and these tenants are often among the first to open. Fitness, personal care, medical and pet services fill immediate needs, while traditional retail tends to come later. Consumers are willing to travel for shopping, but less so for everyday needs.

Service retail is helping establish these centers early by creating initial traffic and supporting the center before the full tenant mix comes on line.

Rethinking Tenant Mix, Risk

Another shift involves how landlords, developers and investors are thinking about tenant mixes. There’s a greater emphasis on securing tenants that people rely on regularly, rather than purely discretionary concepts.

Traditional retail still plays an important role, with many strong operators still performing well in that category. However, it’s increasingly complemented by service users that bring a different kind of stability.

From a risk standpoint, that matters. Centers that are heavily reliant on discretionary spending tend to be more volatile. When service tenants are layered in, particularly those tied to health, wellness and everyday needs, it creates a more balanced and predictable income stream.

While much of the public narrative focuses on what’s going away in retail, the reality in Houston is more constructive. Service retail is playing a key role in that shift, helping stabilize centers, drive traffic and create more consistent patterns of use.

Jason Baker is principal at Houston-based Baker Katz, a full-service commercial real estate brokerage and development firm. To connect with Jason directly, email jbaker@bakerkatz.com.