Although Sugar Land and Missouri City neighbor each other, the two cities present different real estate markets when it comes to retail space, as recent data from Houston-based commercial real estate firm Caldwell Companies indicates Sugar Land tends to have higher rental rates and lower vacancy rates when compared to Missouri City. Over the last decade both cities have cut their retail vacancy rates nearly in half while remaining competitive in terms of rental rates in the Greater Houston area. Factors like build-out and daytime traffic could be contributing to the differences in rates and vacancies, according to local commercial real estate brokers. Victor Litwinenko, co-owner of Japaneiro’s Sushi Bistro & Latin Grill, Jupiter Pizza & Waffles Co., and Guru Burgers & Crepes, said although rental rates are higher than average in Sugar Land Town Square, it is worth the extra patrons the restaurants see as a result of their central hub location. “We do pay a premium to be in Town Square, but it does make sense as a restaurant to be in a cluster of other successful restaurants,” Litwinenko said. “We all help bring traffic to town square and in turn help each other.” Measuring markets Sugar Land’s average rental rates from 2017 are on par with areas like Houston’s downtown business district and The Woodlands while Missouri City maintains lower rates, according to Caldwell Companies data. In 2017 Missouri City had an average vacancy rate of 6.83 percent while Sugar Land had a vacancy rate of 3.83 percent. “They’re completely different,” said Inna Gallagher, principal with Missouri City-based Rubicon Realty Group. “Missouri City is high-quality residential markets, and by high quality I mean good incomes, good density, good age [and] good household size, but it’s residential. Now Sugar Land has a lot of daytime population, also known as office population. That attracts very different retail.” The highest retail rental rate Missouri City has had since 2007 was an average of $16.41 per square foot in 2016. In 2017 the rate dropped slightly to $15.77 per square foot, according to data compiled by Caldwell Companies. In Sugar Land the highest retail rental rate in the last decade was an average of $22.53 per square foot in 2017, with the lowest rate being $17.77 in 2013, according to Caldwell Companies’ data. One reason vacancy rates are higher in Missouri City than Sugar Land could be due to overall build-out within the cities, said Danna Sossen, vice president of Sugar Land-based ICO Commercial real estate company. Sugar Land has about 7 percent of developable land left, while Missouri City has roughly 42 percent of developable land left, according to city officials. Although Missouri City’s percentage of developable land will decrease in the next five years due to plans on file for some vacant land, Sugar Land has become limited in terms of developable space. “Sugar Land is pretty much done,” Sossen said. “You’d have to keep going out Hwy. 59, Hwy. 6 and Hwy. 90—that development, though it’s not done, it’s getting there. Missouri City offers some decent tracts of land for growth.” Many tenants who operate restaurants are looking for higher volumes of daytime population to gain more business during lunch hours, making Sugar Land a more appealing market for restaurant chains, Gallagher said. “In Missouri City you will see more local chain operators or just pure local market operators coming in because they know the market,” she said. “They’re not exactly looking at the data; they just know the neighborhood.”

Bringing in businesses

Areas like Town Square in Sugar Land create opportunities for business and restaurant owners to become a part of a lifestyle center, Sossen said. “[People] want the walk-around, lifestyle, town center, feel,” she said. “They want to be able to go … and bring their children and let them be able to run around. They want to have events that they can, as a community, go to.” Town Square still has about half of its original tenants that were phased in between 2003 and 2010, according to Jennifer Fogle, director of retail leasing and sales for Planned Community Developers. However, since December, Bacon Bros. Public House, Kilo Kolaches and Arepas, and Newk’s Eatery all closed in Town Square within one year of their respective opening dates. Litwinenko, who co-owned Kilo Kolaches and Arepas, said the rental rate was one factor in deciding to close his fourth venture. However, other factors like staffing and location also made a difference, he said. “[Kilo Kolaches and Arepas was] a little too off the highway for people heading into town to stop by and grab something,” he said. “It just wasn’t the right mixture for the space. We are going to wait and focus on Japaneiro’s, Guru and Jupiter.” Jennie Leverett, co-owner of Society Cycle Works on University Boulevard in Sugar Land, pays $22.50 per square foot of space in base rent at her store. Leverett said Sugar Land presented a better opportunity for a specialty bike shop, and she did not consider opening a location  in Missouri City. “It’s a desirable market,” she said. “There aren’t enough bike [shops] in the area. In this location we can see the potential of the growth for the bike community.” Ally & Belle owner Lauren Culpepper, who lives in Missouri City and grew up in Stafford, opened her boutique in the Township Square center in Missouri City last July. “This shopping center that we’re in—I was shopping here as a child,” Culpepper said. “It holds a special place for me, and I felt like it was making a comeback. Just the fact that most of the owners are local, it  has such a cool different vibe I think than if you were to drive up and down Hwy. 6 and be in a strip center.” Culpepper said it would not have been realistic financially  to open initially in Sugar Land Town Square. She also chose to open in Missouri City because she felt like residents of Quail Valley, Sienna Plantation and Riverstone like to shop close by to support local businesses. “[Rent in Missouri City is] much more reasonable than Sugar Land rates,” Culpepper said. “I’m not sure it will stay that way ... because we’re at full capacity now. The better the center starts doing, then probably our rent will eventually start increasing.”

Staying competitive

As Sugar Land and Missouri City continue to maintain competitive rental rates, developers and real estate groups continue adding amenities and centers to attract customers. Should rates ever increase too much in either city, Gallagher anticipates defaults on first generation tenants—especially restaurant owners since they spent the money to install necessary equipment during build-out, she said. “We are very conservative,” Gallagher said. “Even if there is an opportunity to charge above market rates, we will always try to make sure that the rent is affordable and that the tenants can thrive.” When evaluating rental prices for tenants in both Sugar Land and Missouri City, Gallagher said it is risky to ever increase rates too much. “I think it’s more about the experience,” she said. “Every time you [increase] rates, there is a risk. We know that the pricing of the sandwich has not changed—rent should not be changing dramatically either.”