Real estate’s once maligned asset class is strong in Houston.
The metro’s retail market saw rent hikes and low vacancy in the second quarter, amid significant dips in deliveries and net absorption.
The situation is leaving even long-laid plans in limbo, said Jonathan Probst, managing principal of SRS Real Estate Partners.
“Construction costs are so high. Even if they were giving land away, it’s tough to make a new development work,” Probst said.
Some developers that originally planned retail are now entertaining going vertical with office or multifamily instead, he said.
“The increase in interest rates has caused cap rates to rise, making the exit strategy of a potential development unattractive to both local and institutional developers,” he said.
“Retail follows rooftops” rings true in the Bayou City. But a confluence of economic factors are eating into that idea as housing development has begun to outpace retail development, Probst said. As a result, there has been an uptick in demand for second-generation retail spaces.
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