December 16, 2020 (Houston)—The pandemic has had a disastrous impact on most businesses across the world, particularly retailers with physical storefronts. According to data provided by CoStar Advisory Services at least 7,700 stores totaling 115 million square feet were expected to close this year across the United States as of early August. Malls and department stores were predicted to be the hardest hit. Despite the global pandemic and government-mandated lockdowns, Hartman, a Texas-based REIT and recognized Costar Power Broker with a high proportion of small business tenants, believes the retail market in Texas is “primed for opportunity.”
In Houston, the retail real estate markets entered the pandemic from a position of strength as the city was recording occupancy of 94.4% in the first quarter of 2020, according to NAIpartners. Despite its strong footing, the pandemic has caused mass uncertainty and a large decline in retail lease transactions, leading to a significant increase in vacancy rates across the Texas commercial real estate market, with retail and leisure suffering the heaviest. Recorded in a Colliers Retail Market Report, Houston retail reached 17.5M square feet of vacant space at the end of the second quarter, up from 15.8M in the first quarter.
In a study produced by RCA, research discovered that retail and hotel assets combined represented 92% of distressed assets in the second quarter of 2020. CMBS delinquencies peaked faster than any prior year and nearly 70% were first-time delinquencies.
Hartman’s Regional Vice President of Retail Leasing, Katherine Morrison, explained, “Retailers across our Texas portfolio have been dealt a wave of unprecedented challenges this year. Shutdowns, capacity restrictions and reduced foot traffic rendered many of our tenants out of business. We responded like any decent landlord would and offered support for filing SBA loans and flexible lease terms where necessary.”
Hartman, through the first and second quarter of 2020, saw a 4.5% occupancy decline in its retail portfolio parallel to the timeline of the government-mandated shutdowns and occupancy restrictions. Following Texas Governor Greg Abbott’s announcement that businesses could reopen to 75% capacity in the third quarter, Hartman saw an inspired resurgence in retail leasing demand. “For as many retail tenants we have lost we have fortunately been able to backfill them. Our market has been incredible resilient, and our incentive programs are clearly helping stifle some of the uncertainty in retail” commented Morrison.
A leading state in the reopening of the economy, Texas was one of the first to boost its retail capacity back up to nearly 100%. Proof of this inspired economic decision are Hartman’s retail tenants. Once struggling and behind on lease payments, are now well on the way to recovery, with some planning to expand come the new year. Hartman’s retail portfolio will close the year at a 4% higher occupancy rate than it ended with in the first quarter of 2020.
Al Hartman, Hartman’s CEO, shared, “Clearly this year is like none other, but with all things considered, to finish the year as well as we started is a terrific achievement. I am proud of our team and see our Texas retail portfolio primed to take advantage of the surge in post-pandemic activity in 2021.”
As the commercial real estate industry prepares itself for 2021, retail seems to be transforming. New businesses are entering the market, value-oriented and discount retailers are rapidly growing, and all retailers are adjusting to the “new normal” to continue growing sales in a complex environment.
About Hartman: Hartman is a premier property management company in the Houston, Dallas, and San Antonio markets. Hartman has owned and operated commercial office properties since 1983, offering premium office space at attractive rates. For more information, visit www.hi-reit.com.