Retail is emerging as the star of Houston’s commercial real estate market, panelists said at Bisnow’s Houston State of the Market event Tuesday.

A shortage of new inventory has tightened the retail market to about 5% vacancy, making restaurant space difficult to find and big-box bankruptcies and liquidations exciting opportunities. High occupancy rates create fierce competition, but panelists said it is a good problem to have.

Retail rent growth is pushing 25% to 30% across the board for NewQuest Properties, partner Dean Lane said at the event at Chasewood Technology Park.

“These companies are, I wouldn’t say in dire need, but there’s not a lot of product,” Lane said. “The old supply-demand is working.”

The Greater Houston Partnership reported an average rent of $20.87 per SF in the first quarter, up 3.3% from $19.62 per SF in Q1 2023 and $18.97 per SF in Q1 2022.

When Bed Bath & Beyond went bankrupt, those stores paid about $9 to $12 per SF in rent, Lane said. NewQuest could push that rent up to $18 to $20 per SF for the next tenant on an as-is basis, creating a big return on a new deal without a lot of capital investment.

“When we get product back right now, we’re kind of excited about it,” Lane said.

And that will keep happening as it gets harder for tenants to stand out and stay alive. It has become much more difficult to be a successful restaurateur compared to his former restaurant Peli Peli’s performance a decade and a half ago, said Thomas Nguyen, restaurant practice leader in CBRE’s Houston office.

“It’s harder to maintain a consumer’s attention. It’s harder to stay in rotation,” Nguyen said.

There is more competition from a record number of restaurants opening, and costs are going up, he said, adding that landlords need to have a better understanding of what tenants’ occupancy costs are.

Also in stark contract to when Peli Peli opened in 2010, restaurants have to fight for attention from influencers, which could shed temporary light on a new business and create a “honeymoon phase” that won’t last, Nguyen said.

“You cannot expect the same consumers that keep coming back, because they just have more shiny objects in front of them on a daily basis,” he said.

For long-term success, panelists said retailers must provide what the modern-day consumer is looking for.

“It’s making it fun. There are a lot of new, innovative, fun things being brought into the entertainment world,” Lane said. “I don’t think there’s ever going to be another theater that you won’t be able to get a cocktail in.”

Theaters today are adding bowling, arcades and other elements to keep consumers interested. So although renovating a theater is extremely expensive, that's what it takes to be successful today, he said.