Houston’s retail market tightens in the second quarter as demand continues to outpace new supply. Avison Young releases 2Q15 retail Market Report. (www.avisonyoung.com/offices/houston)

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HOUSTON RETAIL MARKET MONITOR
SECOND QUARTER 2015
Partnership. Performance.
Economic Overview
Although plunging oil prices will undoubtedly slow
the retail market in the year ahead, retail properties are
among Houston’s least-vulnerable property sectors.
Houston’s population boom and an active residential
market have driven retail activity in the past few years
as retailers follow rooftops. According to the Greater
Houston Partnership, the Houston metro area led the
nation in population growth last year, adding nearly
157,000 residents. Claritas estimates that the Houston
metro has a current population of 6.8 million, and
population is expected to grow by 7.5% in the next five
years to 7.3 million residents. The Houston Association
of Realtors (HAR) reports that home prices have climbed
tohistorichighs,withtheaveragepriceofasingle-family
home up 4.5% year-over-year (YOY) to $292,040 in May.
Months of inventory, the estimated time it would take to
deplete the current housing inventory, increased to 3.1
months in May, up from 2.8 months in the previous year. The U.S. has a current national supply of 5.3 months.
Houston has added 485,000 jobs since the bottom of the recession. The oil downturn continues to deepen, which is beginning to
have an effect of Houston’s employment figures. The Houston market has added 62,300 jobs in the last 12 months ending in May, a
2.1% increase in employment. The job gains came from industries such as construction, health care, education, and retail. Houston
economists have downgraded previously-forecasted job growth figures for 2015. The GHP forecasted that Houston would add 62,900
jobs in 2015, but has since revised employment growth down to 20,000-30,000 jobs. The Bauer Institute for Regional Forecasting at
the University of Houston slashed predicted job growth to 13,000 for the year. On a positive note, unemployment fell to a near-record
low of 4.0% in April.
*GHP Forecast
Houston Job Growth
‐150,000
‐100,000
‐50,000
0
50,000
100,000
150,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Houston added 62,300 jobs in the last 12 months
ending in May, representing a 2.1% increase in
employment.
Unemployment reached a near-record low of
4.0%.
Bauer Institute for Regional Forecasting at
University of Houston slashed predicted job
growthto13,000,whiletheGHPcutemployment
gains to 20,000-30,000.
Houston’s home prices have climbed to historic
highs with an average price of $292,040 in May.
After peaking at $107/bbl a year ago, WTI fell to
$43/bbl in March before recently stabilizing at
under $60/bbl.
The EIA predicts oil to average $54/bbl in 2015
and $65/bbl in 2016.
Houston Job Growth
Houston’s retail market tightens in the second quarter as demand
continues to outpace new supply
The Houston retail market absorbed over 1.7 msf at the mid-year point, pushing vacancy down to 5.6%.

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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
YE09 YE10 YE11 YE12 YE13 YE14 2Q15
Vacancy Rates
Houston Retail Market Monitor Second Quarter 2015
NOTABLE SECOND QUARTER OCCUPANCIES:
• Walmart Supercenter at 5461 S Rice Ave (178,000 sf). Southwest Near
• Mercedes-Benz of The Woodlands (60,000 sf). Far North
• Fitness Connection at Champion Forest Shopping Center (52,000 sf).
Northwest Near
• HEB at The Hollow at Oyster Creek (50,000 sf). Far South
• Whole Foods at 1407 S Voss (45,000 sf). West Near
• LA Fitness at Yale Street Market (42,000 sf). Inner Loop
• HEB at 14100 Spring Cypress (20,000 sf). Northwest Far
Retail Market Overview
Growth in Houston’s retail market, coupled with limited new construction, has caused the market to tighten further in the second
quarter. The Houston retail market has absorbed 1.7 million square feet (msf) of space at the mid-year point. 1.1 msf of new product
has delivered year-to-date. Absorption has outpaced new supply, causing the vacancy rate to fall to 5.6% from 5.8% in the first
quarter. At this point last year, vacancy registered 6.0%. Healthy demand as pushed average rates up to $15.21 per square foot (psf)
up from $15.10 in the first quarter. An additional 1.8 msf is under construction, well-below the 10-year average of 2.8 msf, given the
tight market conditions.
Today’s retailers are facing a number of obstacles. While the energy downturn is expected to slightly cool Houston’s retail market
over the next year, broader national trends are affecting the local area as well. Online retail continues to grow at double-digit rates,
which is expected to increase as a larger amount of Millennials reach the point where they are making purchasing decisions. Many
brick-and-mortar establishments have begun adapting to this by ramping
up their online presence. Grocery stores are exempt from this, causing this
type of retail development to remain active. Development in this sector
has been led by HEB, Kroger, and Whole Foods. New grocers that entered
the market in recent years include Aldi, Sprouts Farmers Market, and Trader
Joe’s, fueling Houston’s “grocery wars”. Large, mixed-use centers have
grown in popularity, slowly replacing the suburban mall model. Houston’s
retail market will continue to be driven by trends that support the live,
work, and play environment that is favored by Millennials.
ABSORPTION & DEMAND
TheHoustonretailmarketrecorded794,593squarefeet(sf)ofpositivenet
absorption in the second quarter, totaling over 1.7 msf of absorption YTD.
At mid-year 2014, the retail market had absorbed 2.6 msf. The second
quarter marks the 11th consecutive quarter of positive net absorption.
Much of the absorption was due to tenants taking occupancy of newly-
deliveredprojects. Mostnotably,WalmartmovedintoitsnewSupercenter
in the Southwest Near submarket totaling 178K sf. A variety of tenants,
including Sprouts and LA Fitness, took occupancy of 125K sf at Yale Street
Market,anewNeighborhoodCenterlocatedintheInnerLoopsubmarket.
$13.80
$14.00
$14.20
$14.40
$14.60
$14.80
$15.00
$15.20
$15.40
YE09 YE10 YE11 YE12 YE13 YE14 2Q15
Asking Rents
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
YE09 YE10 YE11 YE12 YE13 YE14 YTD
Net Absorption

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Construction of the Grand Parkway, Houston’s third major
highwayloop,isdrivingactivityinnorthandwestHouston. The
$1.1 billion project will connect Katy with the Woodlands when
completed. New residential and office developments have
been announced along the Grand Parkway, and retail activity
has therefore increased in those areas. Additionally, Exxon
completed its 3.1-msf campus in The Woodlands, and over 5.2
msf of office product has delivered in West Houston around
the Energy Corridor in the last two years. These developments
have significantly increased activity in the West Far and North
Far retail submarkets, posting a YTD absorption of 339K sf
and 209K sf, respectively. Baby boomers and Millennials have
shifted demand towards a live, work and play environment,
which is benefitting the Inner Loop submarket. The submarket
has posted a positive absorption of 303K sf YTD.
VACANCY & AVAILABILITY
Vacancy in Houston retail market has fallen to 5.6% from 5.8% in
the first quarter. At this point last year, vacancy registered 6.0%.
The Houston retail vacancy rate has historically remained in
the single-digits, peaking in 2009 at 9.0%. Vacancy is expected
to remain tight throughout the remainder of the year due to
limited new supply. The Inner Loop submarket has the lowest
vacancy rate in Houston (3.4%), followed by West Far (4.1%) and
Northeast Far (4.8%). By product type, single-tenant buildings
historically have the lowest vacancy rates in Houston, although
vacancy has not been this low (1.5%) since 2Q13. The majority
of availability is found in Shopping Centers, particularly in North
and Northwest Houston.
RENTAL RATES
Overall average asking rates have increased significantly since
2012 and continue to rise steadily. Asking rates increased from
thepreviousquarterby$0.11psfto$15.21psf. Alowvacancyrate
and sustained demand have pushed retail towards a landlord-
favorable market and concessions remain limited. However,
the energy downturn is expected to soften the market, and
rental rate appreciation will slow throughout 2016. Areas that
have experienced the largest increases in asking rates from the
previous quarter include the North Far and West Far submarkets.
CONSTRUCTION
There is currently over 1.8 msf under construction in the
Houston retail market. The majority of this space is expected
to deliver in 2015. 1.1 msf has delivered to the market YTD.
The largest project currently under construction broke ground
inthesecondquarterintheWestFarsubmarket. TheShoppesat
Parkwest totals 450,000 sf and is located within one mile of the
Grand Parkway Loop in Katy, one of Houston’s fastest-growing
suburbs. The Power Center development will be anchored by
Bed Bath and Beyond, BuyBuy Baby, and Kirkland’s. According
to the developer, the tremendous access granted by the new
Grand Parkway has significantly changed the traffic patterns
in Katy, allowing the location of The Shoppes at Parkwest to
become a major retail hub for the entire trade area.
Houston Retail Market Monitor Second Quarter 2015
Jeannie Tobin, Research Director
512.913.4438
jeannie.tobin@avisonyoung.com
For more information:
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avisonyoung.com
2Q15 COMPLETED BUILDINGS
Westway Plaza (314,000 sf). FM 1960
2510 E Sam Houston Pky S (80,000 sf). Gulf Freeway/Pasadena
Air Liquide Center North (143,830 sf). Katy Freeway East
Energy Center Three (520,340 sf). Katy Freeway West
Mason Creek Office Center II (127,955 sf). Katy Freeway West
Woodbranch Plaza IV (168,050 sf). Katy Freeway West
Academy Sports HQ (200,000 sf). Katy Freeway West
The Offices at Sam Houston (108,633 sf). Northwest
Tenant Name Building Submarket Square Feet
Burlington Coat Factory The Market at Crenshaw Southeast Far 55,000
Ashley Furniture Deerbrook Corner Northeast Far 52,000
Fitness Connection Champion Forest Shopping Center Northwest Far 52,000
Largest Houston Transactions
THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM SOURCES BELIEVED RELIABLE; HOWEVER, AVISON YOUNG MAKES NO GUARANTEES, WARRANTIES OR REPRESENTATIONS AS TO THE COMPLETENESS OR
ACCURACY THEREOF. THE PRESENTATION OF THIS PROPERTY IS SUBMITTED SUBJECT TO ERRORS, OMISSIONS, CHANGE OF PRICE, OR CONDITIONS, PRIOR TO SALE OR LEASE, OR WITHDRAWAL WITHOUT NOTICE.