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Q3 2014 Houston Retail Market Research & Forecast Report

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Houston's Retail Vacancy Rate Drops to 6.1%

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Page 1: Q3 2014 Houston Retail Market Research & Forecast Report

www.colliers.com/houston

Q3 2014 | RETAIL MARKET

HOUSTON RETAIL MARKET INDICATORS

Q3 2013 Q3 2014

CITYWIDE NET

ABSORPTION (SF) 406K 998K

CITYWIDE AVERAGE

VACANCY 6.9% 6.1%

CITYWIDE AVERAGE

RENTAL RATE $14.67 $15.12

DELIVERIES (SF) 196K 454K

UNDER

CONSTRUCTION (SF) 870K 1.8M

Houston’s retail market posted 1.0M SF of positive net absorption in the third quarter. Some of the tenants who opened new locations during the quarter include Wal-Mart, Floor & Décor Outlets of America, Altitude, Bravo Ranch Supermarket, Petco Unleashed, Robyn’s Nest Boutique, and Best Friends Total Pet Care.

The average citywide vacancy rate fell 10 basis points between quarters from 6.2% to 6.1%, and by 80 basis points over the year from 6.9%. Currently, there is 1.8M SF in Houston’s retail construction pipeline, which includes a 124,000-SF Kroger Marketplace located at the corner of Spring Green Boulevard and FM 1463 and a 63,000-SF Fiesta Mart located at FM 529 and Fry Road.

The citywide average quoted rental rate for all property types decreased 0.1% from $15.14 to $15.12 per SF between quarters and increased 3.1% from $14.67 in Q3 2013. Class A retail rental rates vary widely from $20.00 to $85.00 per SF, depending on location, property type, and building class. New construction rates start in the low $40.00’s per SF, driven by higher land and construction costs.

The Houston metropolitan area created 107,400 jobs between August 2013 and August 2014, an annual increase of 3.9% over the prior year’s job growth. Sectors creating the most jobs included professional, scientific, and technical services, health care and social assistance, and accommodation and food services. Houston’s unemployment rate fell to 5.4% from 6.3% one year ago.

ABSORPTION, NEW SUPPLY & VACANCY RATES

0%

2%

4%

6%

8%

10%

12%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Absorption New Supply Vacancy

Houston’s Retail Vacancy Rate Drops to 6.1%

HOUSTON RETAIL MARKET RESEARCH & FORECAST REPORT

Houston

UNEMPLOYMENT 8/13 8/14 HOUSTON 6.3% 5.4%

TEXAS 6.4% 5.5%

U.S. 7.3% 6.3%

JOB GROWTH ANNUAL CHANGE

# OF JOBS ADDED

HOUSTON 3.9% 107.4K

TEXAS 3.4% 381.6K

U.S. 1.8% 2.5M

JOB GROWTH & UNEMPLOYMENT (Not Seasonally Adjusted)

Page 2: Q3 2014 Houston Retail Market Research & Forecast Report

RESEARCH & FORECAST REPORT | Q3 2014 | HOUSTON RETAIL MARKET

SALES ACTIVITY

Houston’s third quarter retail investment sales activity included 47 sales transactions. Total sales transaction value totaled $178M and the average price per SF was $142. The average cap rate was 6.26%.

Several of the more significant transactions that closed during the third quarter are highlighted on the left.

LEASING ACTIVITY

Houston retail leasing activity in the third quarter reached 1.3M SF. Overall, transactions under 5,000 SF comprised the largest group of retail leases, with the market recording seven leases over 10,000 SF and only two over 20,000 SF in the third quarter.

A partial list of the leases signed during the third quarter are listed in the table below.

COLLIERS INTERNATIONAL | P. 2

Spring Cypress Village 22432-22530 SH 249, Houston, TX Northwest/Cypresswood Submarket

RBA: 97,488 SF Built: 1982/2012 Buyer: Center REIT II, inc. Seller: Delaware Life Date: July 30, 2014 Price: $21.4M or $219/SF Cap: 6.2%

Mason Village 21949-21979 Katy Fwy, Katy, TX Far Katy South Submarket

RBA: 97,473 SF Built: 1977/1992 Buyer: DNA Partners, LLC Seller: John H. Baker Interests Date: September 10, 2014 Price: $14.1M or $144/SF Cap: 6.7

Village Real Shopping Center 961 Nasa Parkway, Clear Lake, TX NASA/Clear Lake Submarket

RBA: 94,259 SF Built: 1977/2007 Buyer: Dunhill Partners, Inc. Seller: Ersa Grae Corporation Date: September 12, 2014 Price: $1.2M or $110/SF Cap: N/A

RETAIL SALE TRANSACTIONS

Dunvale Center I & II 8350 & 8366 Westheimer, Houston, TX West/Near West Submarket

RBA: 22,855 SF Built: 200 0 & 2006 Buyer: JLL Seller: Lovett Commercial Date: August 12, 2014 Price: $7.3M or $319/SF Cap: 7.0%

Building Name or Address Submarket SF Tenant Lease DateWoodforest Shopping Center Pasadena/Galena Park 30,979 Bravo Ranch Supermercado Aug-14

Fry-529 Retail Center Far Katy North 20,460 Goodwill Aug-14

Bayway Shopping Center NASA/Clear Lake 13,988 Build A Party Aug-14

Southpark at Cinco Ranch Far Katy South 12,527 Petco Supplies Aug-14

Shoppes at Memorial Villages Near NW Spring Valley 11,376 Big Yoga Aug-14

Hughes Landing on Lake Woodlands

Woodlands 11,000 Pier 1 Imports Aug-14

612 Spring Hill Drive Woodlands/Conroe Ind 10,524 Kenyon International Emergency Services

Jul-14

North 45 Plaza Near North 9,176 Fashion House Sep-14

Q3 2014 Retail Leases

Page 3: Q3 2014 Houston Retail Market Research & Forecast Report

RESEARCH & FORECAST REPORT | Q3 2014 | HOUSTON RETAIL MARKET

RENTAL RATES

According to our data source CoStar Property, the citywide average quoted rental rate for all property types increased 3.1% from $14.73 to $15.19 per SF between quarters and 3.0% from $14.75 in Q2 2013.

Houston class A retail rental rates vary widely from $20.00 to $85.00 per SF depending on location and center type. Recent quoted rates for community and neighborhood centers range from $40.00 - $55.00 per SF, power centers range from $25.00 - $45.00 per SF and theme/ entertainment centers range from $25.00 - $40.00 per SF. Lifestyle centers in Class A locations such as High Street, Uptown Park and The Vintage range from $45.00 - $85.00 per SF. Strip centers range from $30.00 - $50.00 per SF and outlet centers rental rates range from $20.00 - $40.00 per SF.

VACANCY & AVAILABILITY

The average citywide vacancy

rate fell 10 basis points between quarters to 6.1% from 6.2%, and by 80 basis points over the year from 6.9%. This is the lowest Houston’s vacancy rate has been in the last 10 years.

By product type on a quarterly basis, theme/entertainment centers posted the largest decrease in vacancy, 970 basis points, from 13.2% in the second quarter to 1.0% in the third quarter 2014. Lifestyle centers recorded the largest increase in vacancy between quarters increasing 10 basis points from 9.7% to 9.8%. Houston’s retail construction pipeline contains 1.8M SF and third quarter deliveries totaled 454,000 SF.

ABSORPTION & DEMAND Houston’s retail market posted 1.0M SF of positive net absorption in the third quarter. Some of the tenants that moved into space during the quarter are listed in the table at right.

HOUSTON RETAIL MARKET STATISTICAL SUMMARY

COLLIERS INTERNATIONAL | P. 3

Q3 2014 ABSORPTION

Tenant/ Submarket

SF Occupied

Wal-Mart Baytown 185,989 Floor & Décor Outlets of America Southwest 64,169

Altitude Far North 45,000 Bravo Ranch Supermarket Southeast 42,130

Goodwill Northeast 19,000 Best Friends Total Pet Care Far Katy South 12,000

Rick’s Cabaret Far North 11,637

Petco Unleashed Northwest 10,200

Dollar Tree North 10,068

Five Below Southeast 7,968

RENTABLE AREA

DIRECT VACANT SF

DIRECT VACANCY

RATE

SUBLET VACANCY

SF

SUBLET VACANCY

RATE TOTAL

VACANCY SF

TOTAL VACANCY

RATE Q3 2014 NET ABSORPTION

Q2 2014 NET ABSORPTION

CLASS A RENTAL RATES

(in-line)*

Strip Centers (unanchored) 32,684,191 2,867,966 8.8% 19,569 0.1% 2,887,535 8.8% 156,906 239,373 $30.00-$50.00

Neighborhood Centers (one anchor) 68,050,550 6,647,333 9.8% 30,192 0.0% 6,677,525 9.8% (16,321) 514,281 $30.00-$55.00

Community Centers (two anchors) 43,562,929 2,628,800 6.0% 80,687 0.2% 2,709,487 6.2% 134,438 (22,761) $30.00-$40.00

Power Centers (three or > anchors) 25,737,218 839,691 3.3% 30,000 0.1% 869,691 3.4% 73,846 135,049 $25.00-$45.00

Lifestyle Centers 4,506,971 255,176 5.7% 33,789 0.7% 288,965 6.4% 200,089 (445) $45.00-$85.00

Outlet Centers 1,899,333 247,553 13.0% - 0.0% 247,553 13.0% 2,650 (10,215) $20.00-$40.00

Theme/Entertainment 513,474 5,080 1.0% - 0.0% 5,080 1.0% 49,769 1,028 $25.00-$40.00

Single-Tenant 69,182,398 1,384,739 2.0% 64,554 0.1% 1,449,293 2.1% 388,322 282,905 N/A

Malls 23,073,393 1,198,678 5.2% 24,750 0.1% 1,223,428 5.3% 8,066 93,335 N/A

Greater Houston 269,210,457 16,075,016 6.0% 283,541 0.1% 16,358,557 6.1% 997,765 1,232,550

Page 4: Q3 2014 Houston Retail Market Research & Forecast Report

RESEARCH & FORECAST REPORT | Q3 2014 | HOUSTON RETAIL MARKET

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COLLIERS INTERNATIONAL 1233 W. Loop South Suite 900 Houston, Texas 77027 Main +1 713 222 2111

LISA R. BRIDGES Director of Market Research | Houston Direct +1 713 830 2125 Fax +1 713 830 2118 [email protected]

The Colliers Advantage Enterprising Culture Colliers International is a leader in global real estate services, defined by our spirit of enterprise. Through a culture of service excellence and a shared sense of initiative, we integrate the resources of real estate specialists worldwide to accelerate the success of our partners. When you choose to work with Colliers, you choose to work with the best. In addition to being highly skilled experts in their field, our people are passionate about what they do. And they know we are invested in their success just as much as we are in our clients’ success.

This is evident throughout our platform—from Colliers University, our proprietary education and professional development platform, to our client engagement strategy that encourages cross-functional service integration, to our culture of caring. We connect through a shared set of values that shape a collaborative environment throughout our organization that is unsurpassed in the industry. That’s why we attract top recruits and have one of the highest retention rates in the industry. Colliers International has also been recognized as one of the “best places to work” by top business organizations in many of our markets across the globe. Colliers International offers a comprehensive portfolio of real estate services to occupiers, owners and investors on a local, regional, national and international basis. *Information herein has been obtained from sources deemed reliable, however its accuracy cannot be guaranteed.

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