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Rebounding job market to benefit Houston retail. Flood 4.6 million sq. ft. Construction:
damage stemming from Hurricane Harvey one year ago has In 2018, deliveries will decline
will be completed
boosted job gains and retail spending in the metro. Hiring has from the previous two years when
also resumed in the oil and gas industry, brightening the market’s stock additions totaled 6.2 million
economic outlook. Retail sales grew by $4 trillion in the quarter and 5.5 million square feet.
following Hurricane Harvey, and they have continued to rise as
residents replace household goods and make home repairs.
Energy companies and related firms have also started adding 20 basis point Vacancy:
employees as oil prices climbed during the past 12 months. Retail vacancy ticks up to 5.9
increase in vacancy
Though employment growth in the sector is not expected to percent this year, remaining be-
reach prior levels, it is positive news for the retailer sector as wage low the 10-year average of 6.6
growth strengthens and consumer confidences rises. percent. The rate increased 60
basis points in 2017.
New building codes could impact future construction
pipeline. Retail deliveries reached a cyclical peak last year 2.5% increase Rents:
as more than 6 million square feet of space came online. Building on last year’s 4.1 per-
in asking rents
Completions will fall this year as the construction pipeline begins cent advance, the average ask-
to thin. New buildings codes could also slow construction in the ing rent will climb to $17.32 per
near-term as some developers will have to make adjustments to square foot this year.
proposed projects. Additional expenses related to the new code
could significantly delay some new buildings. Existing assets and
properties already underway will benefit as expanding retailers will
have fewer options for new locations.
Investment Trends
• A healthy economic outlook and higher cap rates than many
Local Retail Yield Trends
other markets attract buyers to Houston retail properties. With
Retail Cap Rate 10-Year Treasury Rate
an average multi-tenant retail cap rate of 7.7 percent, yields in
the metro are some of the highest in the country and the highest
12%
in the state.
Average Rate
-5% • The metro’s jobless rate shrank 40 basis points over the
past 12 months to 4.5 percent in the second quarter.
-10%
08 09 10 11 12 13 14 15 16 17 18*
RENTS:
Asking Rent Trends
Metro United States 1.5% increase in the average asking rent Y-O-Y
Year-over-Year Change
8%
• One year ago, the average rent advanced 5.8 percent
4%
annually, but the rate of growth has slowed over the past
four quarters, reaching $17.16 per square foot.
0%
• The Inner Loop posted one of the strongest paces of rent
growth over the past year as the average increased 10.3
-4%
percent to $25.81 per square foot.
-8%
08 09 10 11 12 13 14 15 16 17 18*
* Forecast
Retail Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
* FORECAST **2017-2022
10%
Southwest 6.3% 40 $15.06 -1.4%
0%
North 7.1% 130 $14.11 -5.7%
-10%
Austin County 13.8% 110 $10.05 10.7%
-20%
Overall Metro 5.8% 30 $17.16 1.5%
08 09 10 11 12 13 14 15 16 17 18*
260 bps
conclusion of its September meeting. The Fed noted inflation has
Rate
20 bps
4% broadly reached its target, while household spending and corporate
investment remain robust. The Fed indicated an additional rate
2%
CAPITAL MARKETS
hike this year and projects as many as three increases in 2019.
0%
04 06 08 10 12 14 16 18* Lending costs rise alongside Fed rate increase. As the Fed
lifts rates, lenders have been tightening margins to compete for
loans. Despite these efforts, borrowing costs remain on an upward
Retail Mortgage Originations by Lender trajectory, which is tightening returns and pushing some investors
to seek greater yields in secondary markets. However, though
100%
buyers may try to push back on pricing due to increased loan costs,
some sellers remain convinced that the strong economy and sturdy
75% NOI performance substantiate aggressive pricing and a widening
National Bank
Percent of Total
International Bank expectation gap is the result. If interest rates rapidly surge upward,
50% Regional/Local Bank
CMBS
this gap could quickly widen, slowing transaction activity.
Insurance
25% Financial The capital markets environment remains competitive. As the
Private/Other
Fed tightens policy, global investors have been acquiring Treasurys
0% in order to capture a considerable yield premium, keeping the
13 14 15 16 17 10-year Treasury near 3 percent. Portfolio lenders are providing
debt for retail assets, with leverage typically capped at 60 to 65
* Through Sept. 26 percent. The sector has become increasingly nuanced, with deals
Sources: CoStar Group, Inc.; Real Capital Analytics more scrutinized due to e-commerce competition. Ten-year loan
structures will range between 4.95 and 5.25 percent, depending
on tenancy, location and sponsorship. Continued consumer
National Retail Group spending underpins U.S. growth, supporting retail demand and
driving a 10-basis-point decline in vacancy to 4.9 percent this year.
Visit www.NationalRetailGroup.com
Scott M. Holmes
Senior Vice President, National Director | National Retail Group
Tel: (602) 687-6700 | scott.holmes@marcusmillichap.com
Price: $250
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline;
U.S. Census Bureau