A few years ago, "lifestyle" and "live/work/play" floated around every conversation related to retail. But it's a different landscape now. The wave of retail sweeping over Houston isn’t just driving development, it’s fundamentally shifting the entire retail market.
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If retail is the tail of the dog, as the old adage goes, it's waving happily. Despite the continued rise of internet retailers, brick-and-mortar retail remains hot in Houston. In fact, Evergreen Commercial Realty president Lilly Golden told the crowd at Bisnow's Houston retail event last week that online retailers are making big moves into physical space. Bonobos plans to open 10 storefronts by 2020, and Warby Parker has drawn up plans to open 1,000. We all know of Amazon’s move into bookstores, and now the retail giant is moving into convenience stores.
On the flip side, physical retailers have turned tech into an ally. Retailers are implementing tech systems to gather mountains of data to help optimize their business. Many retailers have taken that data and spun off different brands to cater to more specific demographics, like Forever 21’s RED or Whole Foods 365. Even grocery stores are turning to tech with curbside pickup being rolled out across Houston.
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The shifting tenant makeup is affecting rents. Big-box retailers are downsizing to junior anchors but rents haven’t come up, so developers are having to compensate with increased pad sites and more endcaps.
With the rapidly changing tenant landscape, Transwestern SVP Crystal Allen says cookie-cutter development doesn’t work anymore. You can’t size up what a tenant needs the moment they walk in the door. For instance, the entertainment concepts coming out of California like iFly and trampoline places need increased ceiling height and more space between columns, which isn’t always easy to do.
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The shift from cookie-cutter design is also pushing up construction costs, Arch-Con SVP Marc MacConnell (with the mic) says. Retail developments need to be increasingly pre-planned to accommodate the variety of tenants, making sure each segment has what it would need, whether that be fewer columns or vent hoods and grease traps. The aesthetic of the space is important too. He says retail development is increasingly sexy. Once the design is done, the real issues begin with labor costs. There are not enough skilled laborers to go around, especially with so much school and residential construction underway.
The challenges are a good problem to have. Everyone in retail is winning big—except those unwilling to reinvent themselves.
We've got more coverage of our Houston retail event in tomorrow's newsletter; stay tuned!
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