While office and multifamily developers went hog wild building after 2008, retail developers were modest, just barely meeting demand—and that conservative approach is benefiting them now.

Wulfe & Co CEO Ed Wulfe says 4.5M SF of retail is going to be built or opened in 2016, a 33% increase over last year. Much of the sector's growth is happening in the suburbs, fueled by aggressive supermarket expansion, but the urban core's also active. Because of Houston’s strong growth for many years, there's pent-up need for retail, he says. Occupancy is 94.5%, an all-time high, and rents are inching up because there's a shortage of space.

New restaurant concepts are booming. But some high-end restaurants are experiencing softness in their business, just as other luxury retailers, but popular priced mass merchandise stores and discount stores are strong. The market is so glowing in fact, that some sectors, like tacos, are getting a bit crowded. (Wait, you can have too many tacos?!)

Streetwise Retail Advisors principal Ed Page tells us grocery stores are white-hot in Houston. Kroger has over $500M worth of deals in the pipeline, while HEB has at least an equal appetite. Randall’s recently announced its first new Houston store in several years. Meanwhile, Sprouts and Whole Foods are selectively continuing to open new locations while Trader Joe's and Fresh Market have put their expansion on hold. 

Whole Foods is attempting to tap into the urban value-oriented market they feel they've missed with the new 365 by Whole Foods Market concept they’re building in the Heights/Garden Oaks area.  It'll be the first of its kind in Texas and will anchor a retail development Fidelis is building at the northeast corner of Yale and Loop 610. The new store will be smaller than traditional Whole Foods, which are normally about 40k SF, and are described as “quality meets value shopping experience” in a fun and convenient environment.

The other golden ticket in Houston seems to be Target. Ed Page says Kimco's Grand Parkway Marketplace was doing well with leasing. Then Target came in, and the shopping center experienced a mini-boom. That prompted Kimco to purchase 26 additional acres to accommodate increased tenant interest.

Large shopping centers anchored by discount department stores or huge grocery stores are starting to become the new retail hubs. In the past year, Ed says, there were only a couple of traditional malls built in the whole country; in the previous six years, there were none. The paucity is due to the inactivity of department stores, the traditional anchors of indoor shopping emporiums.

Instead, people want to shop in open-air entertainment-oriented projects, Ed Page says. One of the few luxury developments in Houston is a great example: OliverMcMillan's River Oaks District is an outdoor space that emphasizes strolling and dining in addition to shopping. It’s not a mall, but consumers do things that they would traditionally do at a mall. A plaza of flowers and mature oak trees is meant to be a gathering spot. (Better than the food court, right?) Shoppers want an experience, says Ed, and this is an upgrade.

Ed Wulfe opines that luxury is soft. That’s probably an impact of the oil industry and the conservative nature of most energy executives.There has been good activity in mixed-use projects combing retail and residential and/or retail and office inside the loop, such as West End and Boulevard Place. There have been a number of high-rise residential developments with some ground-floor retail. Some centers are tweaking and re-merchandising. The most significant is the Galleria. Rice Village and Highland Village also just updated but didn't expand square footage.