Mixed-Use Settings Permeate Houston Retail Market, Drive New Development
With higher costs of land and construction, increased demand for walkable environments and more acceptance of structured parking, mixed-use is finally becoming the norm rather than the exception as the backdrop for new retail development in metro Houston.
Developers of all types recognize that quality retail enhances the value of all surrounding real estate. Apartment and office developers are utilizing retail areas as additional amenities to differentiate themselves from their competition. Selecting the appropriate retailers for highly visible spaces in these developments is extremely important, as those users become strongly representative of the overall project.
Regent Square, a 24-acre development from GID, spans four blocks, with Allen Parkway, West Dallas and Dunlavy defining the perimeter of the project. GID is currently building apartments on one of these blocks to include 50,000 square feet of retail on the first floor and three large freestanding restaurant pads. JLL has been hired to handle leasing of the project.
MetroNational has gained control of the 200,000-square-foot former Sears building at Memorial City Mall and 13,620-square-foot adjoining garage. Trademark has been hired to assist in the redevelopment of the property.
Zadok Jewelers announced a new mixed-use development on 1.6 acres at 1801 Post Oak in the Galleria area. Current plans call for a 26,000-square-foot showroom for Zadok’s that will be situated adjacent to an 11,000-square-foot restaurant space with patios. The upper levels of the building will include a 68,000-square-foot office space.
Construction will begin by September on a new, $130 million mixed-use concept for fitness operator Life Time. The project, the first of its type for the company, will be situated on 11.3 acres just northwest of the Woodlands Mall at Six Pines Drive and Lake Front Circle in Shenandoah. The property will be anchored by a four-story, 140,000-square-foot gym and wellness center with a 35,000-square-foot coworking space on the fourth floor. Dallas-based Mill Creek Residential will also build a multifamily project with a small retail component that will be constructed adjacent to the development.
As for the rest of the Houston market, grocers H-E-B and Aldi are still expanding while Kroger, Whole Foods Market, Walmart and Lidl have temporarily put their Houston expansion plans on hold. Retail developers such as NewQuest Properties, Fidelis and Weitzman have all announced power centers that will be anchored by either H-E-B or Cinemark, with junior boxes for tenants such as Ross Dress for Less, Burlington, T.J. Maxx, Petco and Michael’s.
Although the retail occupancy rate throughout Houston is approximately 94.5 percent, space is becoming available due to bankruptcies (Mattress Firm, Mattress One, Dress Barn), downsizing (Kohl’s) and the closing of several bank branches due to consumer acceptance of mobile banking. Users in the restaurant, fitness, entertainment or medical sectors are quickly absorbing these spaces.
Houston has an insatiable taste for new restaurants. However, we’re seeing some turnover in this sector as a result of increasing labor costs, lower profit margins from delivery and higher rent structures.
By virtue of higher density, people’s propensity to eat outside the home and the “cool factor,” neighborhoods like Montrose, the Galleria, River Oaks and the Heights are the most requested markets for restaurants. As these high-rent trade areas generate lower profit margins, it will be interesting to watch which unique concepts choose to target sites further outside the loop, where lower rents and larger parking areas can be found.
Mall redevelopment is in full force, with owners replacing excess retail with alternative uses such as traditional office, coworking, fitness, hotels, apartments, medical, education, entertainment and additional food and beverage.
The future of department stores remains challenging as more and more customers have altered their shopping patterns and are spending more consumer dollars and time at discount stores such as Ross, T.J. Maxx, Marshalls, HomeGoods and Burlington. Fortunately, many alternative users want to be located in malls and lifestyle centers, which provide the walkable environments of the future. Many of these users pay higher rents than their retail predecessors.
In general, the retail sector is undergoing an unprecedented transition period. Retailers will be investing heavily in technology to transform more in the next five years than they have over the past 50.
Those willing to create omnichannel, frictionless purchasing and delivery processes will remain successful. Amazon and Google will become more partners than competitors to retailers, providing data to ensure each store stocks only the most merchantable items in necessary quantities.
The reason for this latest transformation in retail is not due to the internet alone. The real issue is that luxury is no longer an item that can be purchase — luxury is equivalent to time, and time is priceless.
In the past, people would spend an extra 15 minutes to save $10; now they’ll spend $10 to save an extra 15 minutes. Retailers and developers now have to create offerings that are worth people’s precious time.
This transition will be expensive, but markets will find new equilibriums while forcing delivery of better projects. In turn, this elevated form of retail will further enhance all surrounding real estate and justify more mixed-use development.
— By Lilly Golden, president, CCIM, Evergreen Commercial Realty. This article first appeared in the July 2019 issue of Texas Real Estate Business magazine.