Hot Markets: Houston

Last August, Hurricane Harvey blew in off the Gulf Coast and devastated Houston. The $125 billion in damage ranks as the second highest total for a natural disaster in U.S. history. But months later, Houston is open for business welcoming national chains to move into more than 5 million sq. ft. of retail space completed in the past year.

“Harvey’s impact on retail properties was minimal,” said David Luther, first VP at Marcus & Millichap’s Houston office. “There was some flooding in northern areas, but national brand tenants didn’t skip a beat and started repairs immediately.”

Population and job growth continues on the upswing in Houston, which added more than 63,000 jobs last year, a third of them in office locations. The uptick in retail construction comes after some fallow years and is concentrated largely in northern suburban towns such as Tomball, Cypress, Spring, and The Woodlands. The construction of a third beltway around the city is fueling much of the growth, with grocery-anchored centers leading the way.

“The third ring is near completion, and whenever you’ve got a new highway, you’ve got rooftops and commercial following,” Luther said. “Big grocers like H-E-B and Kroger wanted to be first in. They can afford to build in an area and lose money and wait for the rooftops.”

Much of the new retail GLA is emanating from mixed-use projects under construction in north Houston. The recently opened Valley Ranch Town Center in New Caney presents an eclectic mix of entertainment, necessities, and national retail. Among the first to open there are Kroger Marketplace, Hobby Lobby, Cinemark Theater, Mattress Firm, and Chick-fil-A.

CityPlace in Springwoods Village, now under construction, is a 60-acre mixed-use project near the Exxon Mobil campus that will present 400,000 sq. ft. of retail along with a luxury apartment complex, office space, a Marriott Hotel, and City Place Plaza — an open-air venue for concerts, fairs, and other events.

What’s most in demand, however, are neighborhood centers such as the small-shop centers and shadow-anchored centers that have, for example, a Chipotle, a Mattress Firm, and service-oriented centers, Luther said.