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The boom is back and stronger than ever in Austin, making the city a top destination for retailers and investors.
Bass Pro Shops, H&M, Trader Joe’s, Fresh Plus, In-N-Out Burger, Gander Mountain and Five Below are among the list of well-known national retailers that have opened or announced plans to open their first Austin area stores within the last year. Meanwhile, a growing list of retailers in the Central Texas market are expanding, including Whole Foods Market, H-E-B, Walmart and Alamo Drafthouse, a locally-based chain of movie theaters.
As host of the U.S. Grand Prix, the Austin City Limits Music Festival, the SXSW music festival and conferences, and ESPN’s Summer X Games (starting in 2014), Austin enjoys a certain cachet and glowing national and international media, but the coolness factor isn’t nearly as important as hard numbers for expanding retailers, and Austin’s numbers are impressive.
The Central Texas economy is expected to add more than 35,000 jobs this year, including thousands of well-paying positions at Apple, GM, Samsung, National Instruments and Visa.
More than 70 people move to Central Texas each day, and the Austin MSA is now the 11th-largest city in the nation, according to the U.S. Census.
Signs of growth are everywhere. Existing home sales are up by 19 percent year-to-date compared to the same time period a year ago, according to Metrostudy. Permits for new residential construction jumped 32 percent in the same time frame.
For retailers and investors, the decision to enter or expand in the Austin area is easy compared to the task of finding the right opportunity in an increasingly crowded market. Nearly three years of steady growth have pushed vacancies down and rent rates up in most submarkets, most notably in the Central Business District, where net rents can reach as a high as $40 to $50 per-square-foot.
Almost 318,500 square feet of new shopping center space was under construction at the beginning of this year, according to Capitol Market Research.
Walmart is building four new supercenters around the region, including its first in the suburbs of Kyle, Elgin and Manor.
Several big-name grocery chains are opening stores in high-profile, mixed-use locations, in addition to traditional suburban shopping centers.
Whole Foods is opening a 55,000-square-foot store in the upscale Domain lifestyle center in North Austin. Trader Joe’s has announced plans to open an 11,000-square-foot store in Seaholm, a $100 million mixed-use project on the western edge of downtown. And H-E-B just completed a 83,000-square-foot eco-friendly store at Mueller, a 711-acre mixed-use development on the east side of Interstate 35, where lower incomes have traditionally discouraged retail development.
The wave of new construction hasn’t been enough to satisfy demand for quality retail properties among investors. Low inventory continues to frustrate investors and suppress transaction levels, and cap rates are decreasing as well.
Several major owners did find opportunities last year, including:
• Dallas-based Velocis Fund LP, which bought the Westwoods Shopping Center and Springdale Shopping Center, totaling 350,000 square feet, in November
• RioCan Real Estate Investment Trust increased its ownership of Southpark Meadows and 1890 Ranch, two major power centers, from 80 percent to 100 percent in May as part of the dissolution of a joint venture with Retail Partners of America
• Phillips Edison & Co. bought the 280,099-square-foot Northcross shopping center, anchored by Walmart, earlier this month.
There’s no doubt that it’s a great time to be in Austin, and more people, businesses and capital are coming here each day.
— Cole Brodhead and Herman Tjahja are principals at Austin-based Retail Solutions