Amarillo’s market rarely experiences periods of rapid growth or rapid deceleration. The market cycle sustains solid performance. This stability is due to a well-rounded economy that has benefitted from strong commodity prices and job growth.
Like many markets around the country, the last couple years have been fairly flat, but we did see some areas of economic strength. Retail sales were much higher in 2013 compared to the lower levels of 2012. The leasing of previously empty big box space, significant centers changing hands and the construction of new projects point to a promising 2014.
According to the Amarillo Economic Forecast for 2014 published by Amarillo National Bank, 2013 saw retail sales up 8 percent from the previous year. While such aspects as gains in the stock market have been a factor, a hail storm and the subsequent claims contributed to the increase as well.
After a lull, national and regional tenants are making their way back to Amarillo. The leasing of two previously vacant big box spaces are indications of this reality: A 40,000-square-foot space at The Summit Shopping Center was leased by Sears Outlet, and a 33,000-square-foot vacancy at the Shops on Soncy, previously occupied by Circuit City, has been leased to Conn’s Home Plus. These transactions have taken the two available big box spaces off the market and pushed Amarillo’s overall retail occupancy rate to roughly 95 percent.
Yet despite the high occupancy rate and transactional volume, landlords are still required to be fairly aggressive in order to secure new tenants and keep their centers full. Fairly flat rates, free rent and the availability of a tenant improvement allowance are good indications that conditions favor the tenants. But going forward, assuming continued tight occupancy coupled with new construction, rental rates should escalate.
Sizeable Sale
While a few retail centers changed hands in 2013, none was as significant as Wolflin Village. The 160,000-square-foot center, located just south of Interstate 40 on Georgia Street, has maintained a stable tenant roster since its inception in 1953. Office Depot and Talbots anchor the property, and several strong local and regional tenants also occupy space.
In August of 2013, Wolflin Village was purchased from Dunhill Partners by Fort Worth-based Morris-Floyd Capital Partners. At the time, the center was 94 percent occupied with a 30-year assumable loan. This marked the second time in five years the center had changed hands, as it was purchased by Dunhill Partners in 2009.
Morris-Floyd has plans to improve the center and take advantage of potential upside by repurposing a 31,000-square-foot space currently occupied by Sheplers Western Wear.
Development Pipeline
Last year didn’t see the completion of any significant traditional retail centers, but mixed-use development showed signs of success. Individually, Phase I of a mixed-use office/retail development at 3350 Olsen Boulevard is online and fully leased with several tenants lined up for Phase II, currently under construction with an estimated completion date of March 2014. The needs of tenants are changing and a mixed-use center offers the ability to meet their various requirements.
Like many markets, grocery-anchored centers lead the way for new retail development. This is illustrated by the new United Supermarkets-anchored center on Soncy Road, set to open in March of 2014. United is set to occupy a freestanding building, and an adjacent 22,400-square-foot retail center is currently under construction. Roughly 50 percent of the retail space has been leased, with quoted rates in the $25 per square foot range.
The elevated rate is a good indication of the discrepancy between new construction rates and second- or third-generation rates, which are hovering in the $14 per square foot range. The southwest quadrant of Amarillo continues to see the majority of the new construction, higher rental rates and stable occupancy. Long-term lease renewals of Stein Mart in the Village on Bell and TJ Maxx at The Summit Shopping Center mark the continued success of the area, which drives the Amarillo retail market as a whole.
Moving Forward
While many feel the accelerated economy could level out as the stock market retracts and the hail storm bubble deteriorates, the retail market should remain strong in Amarillo. Most retail brokers in the market have a positive outlook and are experiencing an increase in transactional volume.
A business-friendly environment coupled with measured retail development will push lease rates up steadily while keeping vacancy rates low.
— By Ben Whittenburg, Partner, Gaut & Whittenburg Commercial Real Estate. This article originally appeared in the February 2014 issue of Texas Real Estate Business magazine.