Housing Market Slowdown Not Major Influence On Houston Retail Market

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Low Cost of Living, Strong Job Growth Offset Impact

Houston, TX (August 15, 2007) - While the sub-prime mortgage fallout has impacted some retailers such as Home Depot, Lowe's and Sears, overall, the Houston retail real estate market continues to grow and expand.

This is according to the second-quarter 2007 Houston Retail Market Update report, published by O'Connor & Associates, the Houston-based real estate market research and consulting firm.

Area-wide, occupancy in the Houston area is down, and as a result, rental rates for retail space is also down. But with lower prices comes more demand, with more than 900,000 square feet of space absorbed over the quarter and more than 3.3 million square feet absorbed over the year. Increased construction also points to a strong demand for retail space, with an estimated 4.2 million square feet of retail space to be completed in 2007 according to the Annual Retail Building Survey published by Wulfe & Co. Of that 4.2 million square feet of space, discount department stores account for 17 percent and supermarkets account for another 15 percent. The growth and expansion is attributed to Houston's comparatively affordable housing, strong population growth, and strong job growth.

Relatively stable retail occupancy levels in the past few quarters have eased slightly to 85.36 percent for the second quarter of 2007, the lowest level recorded in the past three years. Occupancy for Regional Malls dipped slightly over the quarter to 87.46 percent. The Community Centers category was the only one to increase occupancy; up 0.08 points to 87.12 percent. Neighborhood Centers posted the largest decline again this quarter; down 0.59 points to 84.06 percent. Strip Centers declined for the third straight quarter; down 0.58 points to 83.52 percent.

Rental rates also decreased over the quarter. This is the first decrease in three quarters. The average rental rate per square foot is now $1.61, down $0.02 per square foot. Rent at Regional Malls and Community Centers remained unchanged at $3.00 per square foot and $1.59 per square foot, respectively. Neighborhood Center rental rates were down $0.04 per square foot to $1.19. Rent at Strip Centers increased $0.01 per square foot to $1.18 per square foot.

Demand for the retail market was strong once again, with 918,383 square feet of space absorbed. Absorption was mixed among the four categories. Regional Malls posted their weakest absorption figures for the past year, losing 63,880 square feet during the quarter. Community Centers continued to increase absorption for the fifth straight quarter, gaining 35,470 square feet. Neighborhood Centers had the strongest absorption for the second straight quarter with 728,280 square feet. Strip Centers also increased absorption over last quarter with 218,513 square feet.

There are 1,990 retail properties surveyed in the report. Regional Malls total 1.00 percent, Community Centers total 7.39 percent, Neighborhood Centers total 52.26 percent and Strip Centers total 39.35 percent.

For a complete report on the Houston retail real estate market, visit http://www.poconnor.com/retail_market_update/2Q_2007.html. The report measures occupancy, rent per square foot and absorption.