Houston's retail market remains strong and moves into 2017 with a healthy outlook

1. Houston’s retail market remains strong and moves into
2017 with a healthy outlook
Research &
Forecast Report
HOUSTON | RETAIL
Q4 2016
Lisa Bridges Director of Market Research | Houston
Houston’s retail market ends 2016 on a positive note and moves into
2017 as the healthiest commercial real estate sector in the metro.
The average vacancy rate remained unchanged at 5.8% on an annual
basis and only increased 10 basis point on a quarterly basis from
5.7% in Q3 2016. Although Houston lost about 80,000 high income
jobs between 2014 and 2016, retail market indicators show no signs
of a struggling economy. According to our data provider, CoStar
Property, Houston ranks fourth nationally in construction activity.
Approximately 74.6% of the retail space under construction at the
close of Q4 2016 is pre-leased. Despite the 1.3M SF of new inventory
delivered in Q4 2016, Houston’s average retail vacancy rate remains
low at 5.8%, only 10 basis points higher than the 5.7% recorded in the
previous quarter.
Houston’s retail leasing activity, which includes renewals, decreased
over the quarter from 1.4M SF in Q3 2016 to 1.1M SF. 2016 year-end
leasing activity was actually more than the previous year, with 6.2M
SF compared to 5.7M SF in 2015.
According to the U.S. Bureau of Labor Statistics, the Houston
metropolitan area created 13,400 jobs (not seasonally adjusted)
between October 2015 and October 2016. Most of the job growth
occurred in government, retail trade, education and healthcare, trade,
transportation and utilities, and professional services.
Summary Statistics
Houston Retail Market Q4 2015 Q3 2016 Q4 2016
Vacancy Rate 5.8% 5.7% 5.8%
Net Absorption (SF) 1.2M 1.5M 1.0M
New Construction (SF) 1.1M 1.3M 1.3M
Under Construction (SF) 2.8M 4.1M 2.4M
Asking Rents
Per Square Foot Per Year
Average $15.20 $14.81 $14.87
Neighborhood Centers $14.72 $14.25 $14.48
Strip Centers $17.30 $17.57 $17.60
Market Indicators
Relative to prior period
Annual
Change
Quarterly
Change
Quarterly
Forecast*
VACANCY
NET ABSORPTION
NEW CONSTRUCTION
UNDER CONSTRUCTION
*Projected

2. Hines Retail REIT Holdings sold Champions Village, a
403,523-SF Randalls-anchored shopping center to Preferred
Apartment Communities, Inc. in October 2016. According to
CoStar Comps, the center sold for $50 million or $124 per SF.
Some of the tenants in the center include Randall’s, Stein Mart,
Barnes & Noble and World Market.
A private investor recently purchased a 15-year net leased
Golden Corral located at 12500 Gulf Freeway. The restaurant
is located in the Near Southeast submarket. The 12,500 SF
restaurant was completely rebuilt in 2016 as one of Golden
Corral’s new prototypes.
GOLDEN CORRAL1
CHAMPIONS VILLAGE
2 Houston Research & Forecast Report | Q4 2016 | Retail | Colliers International
Vacancy & Availability
Houston’s average retail vacancy rate increased 10 basis points from
5.7% in Q3 2016 to 5.8%. At the end of the fourth quarter, Houston
had 16.9M SF of vacant retail space. Among the major property
types, theme/entertainment retail has the lowest vacancy rate of 1.2%,
followed by single-tenant at 2.5%, lifestyle centers at 3.2%, power
centers at 4.2% and community centers at 5.4%. The highest vacancy
rate is among outlet centers at 11.9%, and the largest amount of vacant
space by square feet is among neighborhood centers.
Houston’s retail construction pipeline has 2.4M SF of projects
underway of which 74.6% are pre-leased. The largest project under
construction is the 374,000-SF Fairfield Town Center located on Hwy
290 and Cypresswood in the Cypress master-planned community
development of Fairfield. The center is 100% pre-leased and is
scheduled for completion in March 2017. Another large project under
construction is the Paragon Outlets located on Hwy 59 South in
Rosenberg. This project is scheduled for completion mid-2017 and
some of the tenants that pre-leased. Future tenants include Nike
Factory Store, Old Navy, Gap Outlet, Carter’s, Banana Republic Factory
Store, Skechers, Brook’s Brothers Factory Store and Converse.
Absorption & Demand
Houston’s retail market posted 1.0M square feet of positive net
absorption in the fourth quarter, bringing the total 2016 annual
absorption to 4.3M square feet. About one-third of the Q4
2016 absorption occurred in Baybrook Mall’s new Power Center
development. Tenants that moved into Baybrook include: The
Container Store, REI Co-Op, Total Wine, and Dick’s 105,000-SF
sporting goods store, Field & Stream and Golf Galaxy.
Rental Rates
According to CoStar, Houston’s citywide average quoted retail rental
rate for all property types decreased marginally over the quarter
from $14.89 per SF NNN the in third quarter to $14.87 per SF NNN.
According to Colliers’ internal data, Class A in-line retail rental rates
can vary widely from $20.00 to $85.00 per SF, depending on location
and property type.
Sales Activity
Sources: Real Capital Analytics
Q4 2016
NO. OF PROPERTIES: 31
TOTAL SF: 1.0M
AVERAGE $/SF: $260
AVERAGE CAP RATE: 6.9%
Job Growth & Unemployment
(not seasonally adjusted)
UNEMPLOYMENT 10/15 10/16
HOUSTON 4.8% 4.9%
TEXAS 4.4% 4.2%
U.S. 4.8% 4.4%
JOB GROWTH
Annual
Change
# of Jobs
Added
HOUSTON 0.4% 13.4K
TEXAS 1.8% 212.6K
U.S. 1.6% 2.3M
65
70
75
80
85
90
95
Class A
Occupancy % Avg. Occupancy %
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
$14.00
$14.20
$14.40
$14.60
$14.80
$15.00
$15.20
$15.40
$15.60
$15.80
$16.00
Retail Rental Rate and Vacancy Percentage
Houston, TX
Avg. Rent Avg. Vacancy
*Vacancy percentage includes direct and sublease space.
1
Colliers International transaction

3. 3 Houston Research & Forecast Report | Q4 2016 | Retail | Colliers International33
Leasing Activity
Houston’s retail leasing activity, which includes renewals, increased annually from 5.7M square feet in 2015 to 6.2M square feet in 2016.
Some of the tenants that signed leases during the fourth quarter are listed in the table below.
Market Summary
Q4 2016 Top Retail Lease Transactions
BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE
Shops at Bella Terra Far Southwest 34,950 Total Wine Dec-16
Katy Ranch Crossing Far Katy South 20,625 Rustic Furniture Dec-16
Willowchase Shopping Center Fairfield 18,000 Northern Tool Nov-16
Shoppes at Kingsgate Kingwood 17,150 Aldi Oct-16
Kroger Junction Near Southeast 16,725 Fallas Oct-16
West Road Plaza Near North 13,398 Petco Oct-16
Shoppes at Kingsgate Kingwood 7,350 Dollar Tree Oct-16
Q4 2016 Retail Market Statistical Summary
PROPERTY TYPE
RENTABLE
AREA
DIRECT
VACANT SF
DIRECT
VACANCY
RATE
SUBLET
VACANT
SF
SUBLET
VACANCY
RATE
TOTAL
VACANT SF
TOTAL
VACANCY
RATE
4Q16 NET
ABSORPTION
CLASS A RENTAL
RATES (IN-LINE*)
Strip Centers (unanchored) 34,644,172 2,778,283 8.0% 34,441 0.1% 2,812,724 8.1% 62,546 $27.00-$45.00
Neighborhood Centers (one anchor) 70,908,258 6,196,761 8.7% 47,915 0.1% 6,244,676 8.8% 96,453 $28.00-$46.00
Community Centers (two anchors) 46,651,463 2,455,225 5.3% 66,843 0.1% 2,522,068 5.4% 253,232 $28.00-$45.00
Power Centers (three or > anchors) 26,646,817 1,087,458 4.1% 26,430 0.1% 1,113,888 4.2% 140,343 $28.00-$45.00
Lifestyle Centers 4,775,861 152,760 3.2% - 0.0% 152,760 3.2% -5,257 $40.00-$85.00
Outlet Centers 1,223,753 145,880 11.9% - 0.0% 145,880 11.9% -12,650 $20.00-$40.00
Theme/Entertainment 499,468 6,138 1.2% - 0.0% 6,138 1.2% 0 $25.00-$35.00
Single-Tenant 72,072,629 1,785,127 2.5% 38,766 0.1% 1,823,893 2.5% 241,424 N/A
Malls 24,187,672 1,459,217 6.0% 17,520 0.1% 1,476,737 6.1% 266,540 N/A
GREATER HOUSTON 281,610,093 16,066,849 5.7% 56,286 0.0% 16,298,764 5.8% 1,042,631
A study done by Rockport
Analytics for the Houston
Super Bowl Host Committee
estimates that $450 million in
new spending will occur
during late January and early
February as a result of Super
Bowl 2017.
Source: Houston Super Bowl Host Committee

4. 4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
Copyright © 2015 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While
every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are encouraged to consult their
professional advisors prior to acting on any of the material contained in this report.
Colliers International | Market
000 Address, Suite #
000 Address, Suite #
+1 000 000 0000
colliers.com/<<market>>
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
Copyright © 2016 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While
every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are encouraged to consult their
professional advisors prior to acting on any of the material contained in this report.
Colliers International | Houston
1233 West Loop South, Suite 900
Houston, Texas 77027
+1 713 222 2111
colliers.com/texas/houston
FOR MORE INFORMATION
Lisa Bridges
Director of Market Research | Houston
+1 713 830 2125
lisa.bridges@colliers.com
115.6M SF
15.3M SF
Q4 2016 Highlights