Forget Buildings, Retailers Are Leasing Environments
Sure, location still matters.
But Houston retail experts assert that creating successful mixed-use projects increasingly depends on something a little less concrete: a reason to stick around.
Panelists at Bisnow's Houston Retail & Mixed Use Summit, held July 22 at The Westin Houston, Memorial City, said developers are facing higher construction costs and more selective underwriting than they did before. But they also said projects that combine strong fundamentals with thoughtful placemaking continue to attract investment, tenants and customers.
Midway Executive Vice President Kevin Freels said his firm's redevelopment of Central Park Post Oak, the former Post Oak Central office campus, is an example of how retail has become a catalyst for the rest of a mixed-use project.
"What we're trying to create here, or really make people understand, is people are leasing environments; they're not necessarily leasing buildings," he said.
After implementing a retail strategy featuring destination restaurants, Midway has increased asking office rents from roughly $22 per SF to $35 per SF, with one pending lease approaching a $40 per SF triple-net rate despite the property's mostly Class-B office inventory.
"Even if you have a C building, but it's in an A-plus location, some people will look past that for the right convenience and walkability on the ground floor," Freels added.
But how to make a property a destination doesn't come with a set recipe.
"I think the mistake that so many people are making in development is that we're trying to please everybody," said Carly Catalana, Southern Land Co. senior vice president and co-head of marketing. "No one wants that. That's cookie-cutter. You have to decide what the specific purpose of your project is, what role it plays in the customer's life, and lean into that."
That process begins with understanding the community before leasing tenants or designing public spaces, Rebel Retail Advisors founder and President Lacee Jacobs said.
"What differentiates and creates a true mixed-use destination is the experience, and it's the pedestrian experience," TBG Partners principal Blake Coleman said. "It's a place that you want to linger and spend time."
Successful projects often include a "third place" that gives visitors a reason to gather before shopping or dining, according to Gin Design Group founder and Creative Director Gin Braverman.
Higher development costs have changed how developers look at new opportunities. When they have to shell out $50 or $60 per SF in tenant improvement allowances, developers are going to be choosier about where and what they build, Dhanani Private Equity Group President Nikhil Dhanani said.
Strong grocery anchors continue to make those economics work, according to Read King Vice President of Development Guillo Machado. The firm's H-E-B-anchored projects at The Groves, City Park and Katy Park not only supported other retail leasing but also created opportunities to build adjacent multifamily developments.
Tenon Property Co. principal Jason Ford pointed to Ashford Yard in West Houston, which reached more than 50% preleased before construction began, as another sign that well-positioned retail developments continue to attract demand.
The consensus is that Houston's next generation of retail destinations will be evaluated by more than just occupancy or rent growth. Projects that understand the consumers' wants, create memorable experiences and embolden the surrounding community will be the ones that outperform.
