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Houston's No Zoning Policy Opens Retailers To A Unique Blending And Switching Of Property Types

Houston Retail
Tanglewood Court H-E-B

Retailers are considering the best ways to balance in-store traffic with more pickup orders and at-home delivery that may require a fulfillment center. This multispoke approach means having a couple of different property types in one metro, or, with the "mullet approach," even having different property types in one property.

Houston's lack of zoning presents the ideal environment for big-box retailers to figure out the perfect mix of the retail showroom or customer-facing store and distribution space, Avison Young principal Todd Mason said.

Companies in Houston have the flexibility to transform retail into warehouse space and tinker with their models to find out what is most convenient and desirable for customers.

"Houston is uniquely positioned to handle that," Mason said. "A lot of cities around the country are going to struggle with this." 

One way this conversion trend works is if the asset is in a highly populated community, but the configuration of the space doesn't match the area's need. 

San Antonio-based H-E-B closed a low-performing grocery store at Memorial and Dairy Ashford and converted the space into the company's e-commerce warehouse in August. The satellite location will support home delivery and curbside pickup, a growing trend at many H-E-B stores and indeed grocers around the country. 

The 26K SF store wasn't large enough to operate the kind of perishable department or carry the type of selection customers have requested, H-E-B President Scott McClelland told the Houston Chronicle. 

In many U.S. cities, retail centers cannot simply be transformed into a warehouse and vice versa due to regulatory restraints, which may slow down, alter or halt the conversion. Local governments will have to decide how to handle this policy going forward, Mason said. He believes whoever figures out how to allow that flexibility will be big winners. 

NAI Partners Senior Vice President Jason Gaines

Mason believes other companies will take H-E-B's approach in the future to accommodate the growth of one-hour delivery, just like how e-commerce companies are building last-minute fulfillment centers. It also speaks to a bigger trend of the overlap of property types (i.e. apartments becoming more like hotels, retail becoming more mixed-use and hospitals becoming more like hotels). There has already been some blending of retail and industrial around the country.

Retailers that have traditionally operated brick-and-mortar locations with in-store warehouses are looking at limiting or eliminating the expensive retail space to create a bigger showroom, NAI Partners Senior Vice President Jason Gaines said. Some are opting for creative and cost-effective ways to carry inventory, which in some cases means an off-site, less costly industrial setting.

"A lot has been said that retailers would all fail and all sales would go online, but it is clear that the leaders in consumer sales are going to have a multispoke approach," Gaines said.  

Industries primed to take advantage include dry cleaners with a small convenience-only storefront with offsite or rear warehouse space for processing, overstock/discount merchandisers that will take awkward nonconforming shaped retail space for ultra-cheap rent and furniture stores that offer a mix of a showroom and a warehouse.  

Gallery Furniture was early to adopt this idea nearly 30 years ago, Gaines said. It built a freeway showroom and a giant warehouse in the back.  

"'Buy it today, we deliver tonight,' seemed convenient at the time, but is trendy now," Gaines said. "Furniture is a great catalyst for this retail mullet approach — point of sale in the front and inventory in the back."