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The Houston Retail Market: What’s Changed After A Year of the Pandemic

Block-14-at-Garden-Oaks copy

With malls struggling in Houston and across the country, some of Houston's retail developers are focusing on smaller projects that will feature uses for which consumers have strong pent-up demand. Pictured is Gulf Coast Commercial's Block 14 at Garden Oaks, an 18,000-square-foot, newly completed project in the Garden Oaks area.

By Shawn Ackerman, president of Houston retail, Henry S. Miller Brokerage

COVID-19 is on everyone’s mind. From landlords to tenants, all are desperately trying to predict the future, because the past has destroyed many businesses.

Retailers such as Luby’s, Chuck E. Cheese, Lane Bryant, 24 Hour Fitness, Gold’s Gym, Pier 1 Imports and Tuesday Morning all filed bankruptcy in 2020. Not only did numerous tenants file for bankruptcy, but many more are also barely holding on.

What does the future hold for Houstonians? Only time will tell. Until the market stabilizes, we will continue to compare notes with others in the retail sector on how best to navigate.

Shawn Ackerman, Henry S. Miller Brokerage

Shawn Ackerman, Henry S. Miller Brokerage

Of course, market uncertainty is not only a retail issue. The unemployment rate, while down considerably from the double-digit numbers seen at the onset of the pandemic, remains a cause for concern. Laid-off workers don’t have the disposable income they may have had while employed.

Many people have thus curbed their shopping habits. Until the job market gains traction, retailers will have to be patient to see the long-term effects of this roller coaster ride.

Mall Struggles Continue

Heaviest hit in the retail section have been malls. With anchors like J.C. Penney, Neiman Marcus, Stein Mart and Sears closing their doors, interior mall tenants must fend for themselves when it comes to foot traffic.

Gap, Foot Locker, Build-A-Bear, Forever 21 and others relied on those anchors to attract customers to their physical stores. With a change of strategy — like taking online orders and offering curbside pickup — some were able to reduce the loss of in-store sales.

But how are they to survive over the long run with the decrease of foot traffic due to customers shopping online? Do they exit the mall and go into lifestyle and street retail?

This is a significant change in brick-and-mortar consumer shopping that will impact traditional retailers for years to come. Much speculation has been posited that Amazon or some other e-commerce retailer will take over mall anchor spaces for distribution purposes. In the short term, this sounds great for the owner of the anchor space. However, this solution does not address the problem of customer traffic in the rest of the mall.

Conversely, other retail businesses have boomed because of the pandemic. The golden ticket has been embodied in two words: essential business. Using this get-out-of-jail-free card, these retailers were able to operate while many businesses, including some of their competitors, were shut down.

Over the last 12 months, with more people working from home, essential businesses became go-to places for getting out of the house. Going to the grocery store was no longer a chore. Lines at The Home Depot, Lowes and Ace Hardware wrapped around the block.

Many homeowners in Houston used this time to upgrade or clean out their homes. This has been evidenced by the strong earnings reports of late for both The Home Depot and Lowe’s, both of which cited consumers’ increased  focus on home improvement projects as key growth drivers.

Restaurants Battle for Life

Restaurant seating capacity has been in the spotlight of local and national debate for many months. Only recently did Texas Gov. Greg Abbott lift the state’s mask mandate and allow businesses to reopen at 100 percent capacity. Prior to this, local officials were primarily reacting to COVID-19 reporting. As such, an increase in cases meant every restaurant had to restrict customer occupancy.

Restaurant owners, on the other hand, felt that as long as they followed the CDC guidelines, they should be allowed to remain open. Why should one suffer because another establishment failed to follow the guidelines? There have been numerous instances wherein one bar violated capacity and mask mandates; soon after, all bars were told to shut down.

Episodes like that beg the question, “If we’re all in this together, why are we not working together? Is wearing a mask such a bad thing if it means restaurants and bars can remain open?

It’s tough to understand how a rise in cases because of a negligent bar owner in one area of Houston should impact a city of more than 5 million people. Where’s the logic? If one owner doesn’t comply, does every owner deserve to be punished? Surely there has to be a better solution.

Many restaurants were only able to survive by starting delivery service and curbside pickup. Luckily, when capacity increased to 50 percent, they were able to see hope of inside dining again, which is how they will survive in the long term.

Others were not able to survive. For many restaurant owners, poor sales week in and week out eventually depleted their savings, leaving them little choice but to shutter their operations.  Hopefully, when we reach the other side of this, they will reopen and be prosperous again.

Landlord Situations Vary

Not all landlords have the money to cover the expenses of running a property without collecting rent. Loans, utility bills and property taxes must still be paid regardless of a landlord’s collection rate.

Some lenders have rolled missed payments into landlords’ loan balances, but eventually those deferred payments must be recouped.  You can only kick a can so far down the road before it can’t be kicked any further. The good news is that businesses are starting to see an increase in foot traffic, so the trend of rent collections should be moving in a positive direction.

The light has appeared at the end of the tunnel now that vaccines are being distributed. Houston is on the mend and will overcome this just like the flooding of years past. The people and businesses here always come together in a time of crisis. This will make our city stronger for many years to come.

Content Partners
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Walker & Dunlop

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