ashlea@rednews.com
By fall and before many Houstonians will have Christmas shopping on the brain, there will likely be few new rooms at the proverbial inn for retailers.
That’s according to E.D. Wulfe, Houston’s self described “Real Estate Guru.” Wulfe is president and principal of Wulfe & Co., a commercial real estate firm.
Speaking to a room of retail executives, investment bankers, retail brokers, attorneys and local developers over lunch Wednesday, Wulfe detailed Houston’s retail outlook for the rest of the year.
His forecast doesn’t include a lot of new retail, but Wulfe said that isn’t necessarily a bad thing.
In the more than 20 years since he’s been making market projections like those at Wednesday’s retail forecast lunch organized by O’Connor & Associates, Wulfe said he “couldn’t recall so many negative forces at work nationally and locally.”
According to Wulfe, Houston lost 84,000 jobs in 2009. He said unemployment is currently at 8.8% compared to 6.5% around this time last year.
Business construction is also drastically down. Wulfe said at the end of 2009, there were 3.1 million square feet of new offices under construction or renovation compared to 10 million the year before.
On the retail side, Wulfe said he knows of only 950,000 square feet of new retail space to be built and opened in 2010. “That is 69% less than was built in 2009, which was 53% less than built in 2008,” said Wulfe.
He believes quality locations will continue to be absorbed or improved “since we haven’t built any in ’08, really ’09 and won’t be building any in 2010,” said Wulfe.
“I’m predicting that in the last quarter of 2010 and into 2011 there will be a shortage,” said Wulfe, “a shortage of good retail space and anchored retail real estate locations throughout our area.”
It’s a shortage he thinks will make the market stronger in the long run.
“In the long term, I think this benefits us, benefits the market, gives us stability and allows us to absorb many of the spaces that have come off the market as a result of closings.”
COMING SOON
The 950,000 square feet of new retail space in the Houston area won’t be anchored by the usual suspects, according to Wulfe. Instead, two furniture stores and five grocery stores will be Houston’s newest residents. Planning to open this year are:
-3 H-E-Bs
-2 Rooms to Go
-Walmart (200,000 square feet in Northline Center)
-Kroger (123,000 square feet in Willis)Wulfe said Walmart’s 53 stores have the largest share of the Houston grocery market (28.7%) followed closely by Kroger (25.5%) with 101 stores, and H-E-B (15.5%) with 48 stores.
ON THE MARKET
Wulfe said the closings of Linens ‘n Things & Circuit City left around 600,000 square feet of vacant retail space. He said half of those buildings have been recommitted.
Surplus bank locations are also on the market from last year’s consolidations, acquisitions and mergers. “This is great real estate to be recycled and reinvented,” said Wulfe.
THE TROUBLE WITH MALLS
Wulfe said there are multiple thriving regional malls in the area that have at least four successful department stores. He said some of the malls’ success had been clouded by their owner, General Growth Properties. GGP filed for Chapter 11 bankruptcy protection last April. GGP owns Baybrook Mall, Deerbrook Mall, First Colony Mall, Willowbrook Mall and The Woodlands Mall.
GCP is the second-largest mall operator in the United States. Simon Property Group is the largest. Wulfe said Simon had property at the corner of Katy Freeway and the Grand Parkway for years, but the property is back on the market and Simon had decided not to build the mall.
Of greater concern, according to Wulfe, are older malls where department stores and other retailers have left. He said Greenspoint mall recently lost Sears and both department stores have moved out of the Pasadena Town Square. At the Northwest mall, Wulfe said the Macy’s never reopened after Hurricane Ike. Sharpstown mall is going through a transformation. Mainland mall operators in Galveston have filed for Chapter 11 bankruptcy protection. Last year, West Oaks mall was sold out of foreclosure.
GOOD NEWS
Wulfe said construction costs were projected to be down as much as 25-30% in 2010. “Those numbers can help make your numbers for your project work and serve to make it more viable sooner,” said Wulfe.
ADVICE
Wulfe told those in attendance to ensure their existing projects were moving forward. “Do whatever you can to keep existing tenants, even if it means renegotiating a little bit or giving them some TI dollars to refurbish their space. Get back to the basics, take care of those tenants, they need to be nurtured. It’s a competitive world,” said Wulfe.
(L to R) E.D. Wulfe & Scott Megahan, Wulfe & Co.
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