Retail real estate in Dallas-Fort Worth (DFW) is nearing its cyclical peak, and users that want to continue expanding in the metroplex are being hamstrung by a lack of quality space and surging rents.
According to CoStar Group, DFW’s retail vacancy rate currently stands at 4.4 percent, a record low that the research firm expects to hold steady or even improve in the coming years. Rents have grown by more than 3 percent annually over the last five years, and are now 15 percent higher than their pre-recession peaks.
Put simply, DFW is a landlord’s market. As such, retailers that have had success in the metroplex over the last decade and want to keep opening new stores should be considering other markets. One of the ideal landing spots for these users lies a mere 200 miles up Interstate 35 in Oklahoma City.
According to CoStar, Oklahoma City’s retail vacancy has grown by approximately 100 basis points over the last two years, currently clocking in at 6.1 percent. There is very little new product under construction — less than half a million square feet — but asking rents in Oklahoma City average $14.40 per square foot, compared to $18.89 per square foot in DFW.
The oil and gas sector, which has taken some lumps toward the end of the year but appears to be back on solid ground, remains a key industry in Oklahoma City’s economy. In addition, the city has seen its economy diversify in recent years. Oklahoma City now counts aerospace and agriculture, as well as office-using industries like information and financial services, among its biggest drivers.
The Oklahoma Chamber of Commerce notes that the number of jobs in the state is projected to grow by 41 percent over the next decade. That growth rate exceeds the projected national average of 38 percent. And while the median household income among Oklahoma City residents is below the national average, local experts expect the city to catch up as more college graduates enter its workforce.
Shopping in the Sooner State
Retail users can not only have success in Oklahoma City; they can also find growing, sustainable markets for new stores en route to the state capital.
Smaller cities such as Lawton, Durant and Ardmore — not to mention Norman and the University of Oklahoma — all offer retailers trade areas with anywhere from 25,000 to 35,000 people. Beyond Oklahoma City is Tulsa, another large city with a growing population of college students and young professionals. For an established retailer with strong credit, a loyal customer base and an effective online sales platform, following this path could translate to as many as a dozen new stores.
These markets are testaments to Oklahoma’s growing population, which has increased by about 5 percent since 2010, per the U.S. Census Bureau.
Without question, the pace of growth pales in comparison to Texas and especially DFW, but therein lies opportunity for certain retailers to establish themselves as bigger fish in smaller ponds.
Oklahoma City has two malls — Penn Square and Quail Springs — that continue to perform well in the e-commerce era. It is common to see small-footprint retailers, particularly those in the apparel and soft goods segments, fighting for spaces at these malls.
The competition for space in these environments is attributable to the fact that these malls represent the cutting edge of Oklahoma City’s shopping scene. For restaurant concepts, these are the preferred locations, but again, the supply of quality space is limited.
Consequently, the restaurant industry, particularly with regard to first-to-market and chef-driven concepts, is quite underserved in Oklahoma City. It is unquestionably a segment of the market characterized by high demand and low barriers to entry.
Entertainment continues to be underserved in Oklahoma City as well. Developers of new retail properties, as well as owners of shopping centers with struggling big boxes, should be courting these users particularly hard. To understand why, developers and owners need look no further than Chisholm Creek, a 190-acre mixed-use development on the city’s north side.
Developed by local firm The Medallion Group, Chisholm Creek features a mix of boutique and traditional big box retailers. But the inclusion of Topgolf, Main Event and iFly Indoor Skydiving has enabled the property to transcend shopping and emerge as a true destination.
As a result of the property’s increased entertainment offerings, Medallion Group achieved rents greater than what most brokers thought possible. An additional entertainment district has also been planned for Chisholm Creek, which will include an amphitheater, boutique theater, food hall and a community park.
Oklahoma City is following in the footsteps of other growing retail real estate markets. The metro enjoys many of the same lifestyle and occupational advantages as Texas: a low cost of living, an abundance of affordable housing and business-friendly laws.
In the past year, wallethub.com ranked Oklahoma City as the best large city to start a business, while CNBC proclaimed the city a top market for its combination of high-paying jobs and a low cost of living.
These attributes have contributed to an unemployment rate very much in line with the national average. With jobs, people and housing all coming to Oklahoma City in the midst of a larger bull market, the city’s retail real estate market is being revitalized as it grows, with little reason to expect a slowdown in the near future.
— By Rob Franks, executive vice president, JLL. This article first appeared in the December 2018 issue of Texas Real Estate Business magazine.