Grocery stores lead retail development for 2015

More new retail spaces are expected to open in 2015 in the Houston area than any year since 2008, with 32 planned new grocery stores leading the way, a prominent commercial real estate firm says.

In its 22nd annual retail survey, Wulfe & Co., projects that grocery stores will make up 43 percent of the surge. In total, retail development is expected to jump 56 percent over last year, to 3.71 million square feet of new retail space.

Low gas prices are giving consumers more to spend, said Ed Wulfe, chairman and CEO of Wulfe & Co, and troubles in the oil and gas industry haven't dampened expansions in retail. It might soon make new projects cheaper to build.

"Occupancy rates are near an all time high at 92 percent," Wulfe said. His survey has a 95 percent accuracy rate, he said, and most of the projects are already under construction.

Retail is just catching up to the recent growth in housing and office space, said Bill Gilmer, director of the Institute of Regional Forecasting at the University of Houston.

Retail was overbuilt before the recession, he said. Wulfe's data shows 6.26 million square feet of new retail space in 2008, which dropped to under a million in 2010. As supply begins to meet pent up housing demand this year, retail will catch up with growth in the housing market, Gilmer said.

"This will be the year that lot prices and land prices begin to come down significantly," he said.

Lower demand elsewhere will spell relief for retail developers in land and construction costs. "Suddenly it's going from a very hot market for land to a more reasonable price," Wulfe said.

Construction in housing and office buildings follows the oil and gas industry, which is slashing spending and laying people off as companies wait for oil prices to rebound.

"The slowdown in multi-family (housing) is related to the slowdown in the creation of jobs ... it's doing that because of the slowdown in energy sector hiring," Wulfe said. "There's a direct correlation between jobs created and construction."

But grocery stores and restaurants are gaining from the extra dollars consumers are saving on gas, he said.

Kroger plans to invest $409 million in Houston-area stores from 2014 to 2016, with four grocery stores to open this year, in Baytown, Clute, Cypress and Katy. The company also plans to add six gas stations, expand two existing grocery stores, and remodel 11.

"Our business continues to grow," Bill Breetz, president of Kroger Southwest, said in a statement. "Our forecasted growth will help create thousands of local retail positions, and increase management and contractor opportunities."

Whole Foods will add one store in The Woodlands and expand and relocate its store on Woodway Drive, near the intersection of Voss Rd., to Voss. Wulfe & Co. counts this as a new store because the footprint will more than double.

HEB will open seven new stores, the company said, three of which will replace older ones. Last year HEB added two stores. "In the last two to three years we've seen significant growth," in Houston, HEB spokeswoman Cyndy Garza said.

Sprouts will add two new spaces, by Wulfe's count, and ALDI said it will open 11 more of their smaller stores in the area. Walmart said it will open four of its smaller neighborhood markets. Each store will employ up to 95 people, Walmart spokeswoman Anne Hatfield said. Three, in Pearland, Cypress and Atascocita, will open on Jan. 21, and a fourth will open in Katy this year.

"It's evolving with our customers. They're all about convenience," Hatfield said of the smaller format Walmart stores, which include a full grocery. "We're building new stores because there's a growing demand for retail services."

Fiesta also will open a new store on Jan. 21, in Cypress. And Trader Joe's has one more store planned in Cinco Ranch.

Walmart, Kroger and HEB are the largest grocery chains in the East Texas and Louisiana area, which includes Houston, as measured by The Shelby Report trade publication, with each taking close to a quarter of market share.

Byron Carlock, head of consulting firm Pricewaterhouse Coopers' real estate division, said the face of retail storefronts is changing. Consumers are demanding more fresh, organic and prepared foods, and stores and restaurants offering healthier food are growing nationally, he said. Those, and services like medical clinics, exercise studios and dry cleaners are making up neighborhood retail centers. Meanwhile clothing stores and big box stores are orienting themselves more toward online shopping and stores that create an experience for the customer.

Wulfe also noted the growth of healthcare facilities in retail spaces. "They're really taking their services to the consumer," he said.

For example, a Kelsey-Seybold medical clinic took over a former Borders bookstore space in one of Wulfe's Meyerland developments, he said.

Growth in restaurants has also contributed to demand for retail space, Wulfe said, and restaurants play an important role in driving traffic to shopping centers.