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Shopping Centers Today -> May 2003
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IS HOUSTON MARKET REACHING SATURATION?
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| Regency Centers razed Houston’s tired Gulfgate and replaced it with a snazzy power center. |
Retail development in Houston is showing signs of cooling off, at least when it comes to big projects, but there is more activity when it comes to smaller centers.
The city’s overall shopping center occupancy rate dropped to 85 percent in 2002, down 1.5 percentage points from 2001, according to research by O’Connor & Associates, a Houston-based consulting firm that tracks the local commercial property market. Levels that low have not been recorded there since 1994.
“We’re seeing a flattening or slight slowing of retail development,” said Ed Page, a principal at locally based commercial real estate brokerage and consulting firm Boyd Page, which represents about 85 retailers. “The number of new retailers coming into town has slowed, and most existing retailers have reached some degree of saturation in this market.”
The bankruptcies of Kmart Corp. and Service Merchandise Co., plus grocery chain Albertsons’ decision to exit Houston, dumped nearly 3 million square feet of space onto the market this year, said E.D. Wulfe, president of Houston-based retail brokerage, development and consulting firm Wulfe & Co. Meanwhile, locally owned lower-end junior department store chain Weiners went out of business in 2000, said Page.
Wulfe predicts that about 4.5 million square feet of new retail space will be built in Houston by the end of this year, a notable decrease from the 6.2 million square feet constructed in 2002. The fact that Kohl’s had opened about 1.2 million square feet of stores in the Houston market on the same day in March last year partly explains that decline, he said.
Where there is development activity, the projects are smaller such as grocery-anchored centers, Wulfe said. Regency Centers Corp., Jacksonville, Fla., bought four grocery-anchored neighborhood centers last August, all within the Woodlands planned residential development, a growing community 26 miles from downtown Houston. That brings to eight the number of centers Regency owns in the Houston area.
“We liked Woodlands in particular because of its high barriers to entry,” said Patrick Egan, Regency’s vice president of investments. Though Houston’s lax zoning laws leave developments vulnerable to having a competitor plant another center nearby, Egan said, development is much more restricted within the confines of Woodlands.
Regency says it aims to own between 20 and 25 strip and neighborhood centers in the Houston area, both through acquisition and ground-up development. The company opened a Houston office in October.
The firm tore down the aging Gulfgate Center mall in the city’s predominantly Hispanic southeast section, replacing it with a power center anchored by H-E-B, Lowe’s Home Improvement, Marshalls, Old Navy and Ross Dress for Less. The old mall’s luxury retailers were at odds with its largely working-class demographic. The first phase of the redeveloped Gulfgate opened last May, and Regency expects to complete the rest of the 700,000-square-foot project in the spring of 2004.
Elsewhere, existing retailers are looking to beef up their presence with new stores. Palis Royal, another locally owned department store chain, successfully reorganized after filing for bankruptcy in June 2000 and began opening new stores.
“The Houston market is strong,” said Wulfe, noting that when Albertsons left, competitors H-E-B, Kroger and Safeway snatched up its properties.
Meanwhile, the Enron bankruptcy, and the merger between Compaq Computer Corp. and Hewlett-Packard Co. have loomed large over the Houston office market. But the job market will probably absorb the layoffs from both, officials say, limiting any impact on retail.
The city should be seeing more consumers in the future. Texas A&M University projected in a December 2001 study that Greater Houston’s population, now at about 4.5 million, will swell by as much as 750,000 by 2010. There is also retail growth potential in the inner city, which Wulfe says is underserved.
All of which makes the area promising in Regency’s eyes.
“Without question,” Egan said, “the disposable income here is conducive to the type of centers we own.”
— D.M.
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