By Matt Epple, executive vice president, Weitzman Austin; and David Nicolson, president, Weitzman San Antonio
One of the best-known metroplexes — a term that was coined way back in 1915 to describe the phenomenon whereby two or more important cities expand to form one continuous urban area — in the country is Dallas-Fort Worth (DFW). Now, new data from the U.S. Census Bureau has led the Texas State demographer to predict that Texas’ next new mega metro will be Austin-San Antonio.
Matt Epple, Weitzman Austin
Austin gained nearly 200,000 new residents over the past decade for a growth rate of 21 percent. San Antonio added 107,218 people and is one of the top 10 largest U.S. cities by population.
Together, the two markets form a powerhouse metro area of nearly 5 million people. The Austin and San Antonio metro areas each represent robust economies with strong population, job and housing growth. Together, they are almost unbeatable.
While the markets are on track to merge into a metroplex, for now they are each distinct enough that we produce separate research reports. But without a doubt, these two metro areas account for some of the most positive retail performance in the state.
In formulating this market analysis, Weitzman reviewed an Austin-area retail space inventory of approximately 51.4 million square feet in retail projects with 25,000 square feet or more. Weitzman also reviewed a San Antonio retail inventory of approximately 47.6 million square feet of retail space in multi-tenant shopping centers spanning 25,000 square feet or more.
David Nicolson, Weitzman San Antonio
Austin
Austin’s retail market currently has a stabilized occupancy rate of 95.2 percent, which represents the end of the vacancy increases prompted by retail closings during the worst of the COVID-19 pandemic in 2020.
This occupancy rate leads Texas’ major-metro retail markets, even though it represents the traditionally tight market’s second-lowest occupancy mark since 2013.
The market’s occupancy stabilized thanks to the overall tight market for retail space, a recovery in leasing activity that is helping absorb well-located and extremely limited construction that comes on line significantly or fully leased. Additionally, this year has been spared the large-format store closings that occurred in 2020, when closures spanned a range of concepts, from gyms to junior boxes like Pier 1 Imports.
During 2021, existing market vacancies found new tenancy from both arge- and small-format concepts, especially for centers in locations with good traffic and co-tenancy. This renewal of leasing demand following a slowdown that occurred during the depth of the pandemic is another reason for a return to stability in Austin’s retail occupancy.
While the market at mid-year 2021 still reveals small-shop vacancies due to failures caused by the pandemic fallout, it is expected that the majority of these remaining vacancies will be backfilled by the end of this year.
One of the largest deals in an existing space involved a Weitzman-negotiated lease for Conn’s HomePlus, which backfilled a 40,000-square-foot retail space at Capital Plaza, a Target-anchored shopping center located along the Interstate 35 corridor.
The market for second-generation restaurant space is also strong. Weitzman recently negotiated a high-profile restaurant lease within this segment of the market. The lease involved Maryland-based fast casual seafood chain Mason’s Famous Lobster Roll, which backfilled 1,091 square feet of street-level retail space in The Austonian, a residential tower located at the upscale downtown intersection of Congress Avenue and Second Street, for its first Texas location.
Despite the strong market, deliveries of new space remain muted for reasons that include the nationwide contraction of anchors, phasing of projects and a move toward smaller developments overall.
For both Austin and San Antonio and even nationally, construction activity is also impacted by supply chain delays and price increases of 30 percent or more for certain materials. As a result, many projects are on hold due to the much-higher-than-market rents required to justify new construction in this current environment.
For 2021, Weitzman forecasts that metro Austin will add approximately 475,000 square feet of retail space in new and expanded projects each totaling 25,000 square feet or more. By comparison, during calendar-year 2020, metro Austin added a total of approximately 402,000 square feet of space.
San Antonio
San Antonio’s retail occupancy has stabilized at 93.6 percent after seeing a decline during 2020 caused by the retail traffic disruptions faced by retailers and restaurants during the depths of the COVID-19 pandemic.
With the rollout of vaccines, the state saw pandemic occupancy and other restrictions eliminated this year. As a result, retailers, restaurants and service providers saw a return to healthy shopper traffic throughout the metro area. The downtown market also was boosted by a return of tourism and convention traffic.
Occupancy also stabilized as large-format retail closings declined significantly compared to 2020, when box retailers like Sears, Stein Mart and Pier 1 closed locations that totaled nearly 600,000 square feet.
For the calendar year 2021, San Antonio is on track for another decline for annual retail construction of new and expanded space, based on projects scheduled to open by the end of the year.
For the year, Weitzman forecasts about 254,000 square feet of retail space on track to open in new and expanded projects with 25,000 square feet or more.
The 2021 deliveries represent a decline from 2020, also a low-construction year with only 355,000 square feet of new space.
One reason that construction remains so conservative involves phased retail projects. For example, Weitzman is leading the development of IKEA-anchored Live Oak Town Center. While this project will total well over 800,000 square feet upon completion, phased construction over several years will add anchor, junior anchor, entertainment and restaurant space. As a result, the space added in any calendar year is limited.
On the small-tenant side, Weitzman has done several deals in second-generation space, a trend that adds to occupancy. These include the first San Antonio location for the Cracker Barrel-owned comfort food concept, Maple Street Biscuit Co., which leased 2,770 square feet of retail space in H-E-B-anchored Culebra Market, located at Culebra Road at Loop 1604.
— This article originally appeared in the October issue of Texas Real Estate Business magazine.