In cities around the country, growing numbers of developers are prioritizing the inclusion of local and independent boutique retail tenants in centers with more recognizable national chains. At a time when the retail industry is undergoing some profound changes, it should not be surprising that we have seen a correspondingly significant shift in conventional wisdom about how to build a tenant roster. That shift is especially evident in adaptive reuse projects, and in retail and mixed-use developments located in more urban areas. Consequently, we have some great real estate in the country being occupied by largely unproven brands and businesses. These local or up-and-coming retailers may not have extensive backgrounds or long and proven sales histories, but they do have the exclusive, authentic feel that developers — and communities — are looking for. Projects like Heights Mercantile, a low-rise urban market district in Houston’s Heights neighborhood, are thriving through tenant rosters populated largely with chic and exclusive independent brands. Even the small handful of national names at Heights Mercantile — Lululemon Athletica, Warby Parker, Marine Layer Inc. — are either exclusive to the region or have the kind of “cool” factor consumers are drawn to. There are a number of …
Texas Market Reports
If you want to understand the state of Texas’ retail market as of the first quarter of 2019, just look at the numbers. In terms of jobs, Texas is on track to add 191,000 net new jobs this year, according to the Federal Reserve Bank of Dallas. Much of that growth will be in our major metro markets of Austin, Dallas-Fort Worth (DFW), Houston and San Antonio. In Austin, for example, unemployment stood at an extremely low 2.7 percent as of March 2019. DFW’s rate is a healthy 3.3 percent; Houston’s is 3.7 percent and San Antonio’s is 3.1 percent. All of these rates are considered strong. Population growth is a big driver of retail demand and in terms of this metric, all of our major Texas metros are national leaders. The country has only 11 cities with 1 million people or more within city limits. Three of those — Dallas, Houston and San Antonio — are in Texas. And by 2020, Austin is on track to be the fourth. This healthy job and population growth are big drivers for our retail markets. Plus, near-record-low development at a time of steady demand is driving expanding concepts to lease in existing …
Development of new office space in the McAllen-Edinburg-Mission metro area rarely happens on a large scale. This ensures that the market remains steady, if unspectacular, assuming the fundamentals during both expansions and contractions do not change. According to CoStar Group, the metro’s office vacancy rate currently stands at 6 percent, while the average asking rent sits at $20.44 per square foot. Modest vacancy compression and rent growth are forecast for the coming years, with the vacancy and average asking rents expected to hit 4.2 percent and $21.30 per square foot, respectively, by 2023. Throughout the Rio Grande Valley (RGV) region as a whole, office market growth is largely confined to McAllen and Edinburg. There is one signature project — Rio Bank’s new corporate headquarters in McAllen — that will serve as a barometer of how well the market can large additions of quality space. According to local newspaper The Valley Morning Star, the 125,469-square-foot project carries a price tag of $20 million. Construction began in January 2018 and is slated to open either late this year or early in 2020, with the namesake tenant expected to occupy about a third of the space. Per local sources, the property, which is …
Despite the fact that demand for retail space in McAllen is at an all-time high, average asking rents are not rising at rates that preclude new users from entering and expanding within the market. According to the McAllen Chamber of Commerce, the retail occupancy rate currently stands at just under 95 percent. The user base is balanced between big box home furnishing and service tenants, neighborhood retailers providing essential services, entertainment concepts and both national and regional food and beverage users. As one might imagine in a market with 95 percent occupancy, there is considerable new development underway. And while rents, which currently max out at about $24 per square foot for new Class A product, have displayed a steady ascent, they also stand at levels that allow for both users and landlords to comfortably turn profits. Most retail real estate professionals in McAllen live in fear of being overbuilt. And indeed, there is new product of all varieties — freestanding, strip centers, power centers — coming out of the ground. A prominent example of new retail development lies in Shops at 29, a power center anchored by Dave & Buster’s and leased to other large-format users like Burlington and …
Relative to past cycles, the multifamily market of the McAllen-Edinburg-Mission metro area has seen a record number of new deliveries of Class A product over the last four years. The metro’s population has grown significantly during the current economic expansion. According to the U.S. Census Bureau, the population of the city of McAllen alone has increased by 9.5 percent over the past decade. Combined with a relatively low cost of living throughout the region, the market’s natural growth has prompted greater demand for multifamily product while also allowing more residents to gravitate to higher-quality housing. With demand rising over the last few years and developers adding record volumes of new supply in order to meet it, 2019 purports to be a year in which developers focus more on leasing up existing projects rather than greenlighting or breaking ground on new ones. To better understand the depth of supply additions to this market between over the last four years, consider fluctuations in the vacancy rate. Vacancy Movement In 2014, just before the building boom began, the market had a vacancy rate of 5.5 percent. At the peak of the construction cycle, which occurred in mid-2017, vacancy stood close to 14.5 percent. …
The agriculture industry, long an economic staple of the Rio Grande Valley (RGV), has been at the forefront of the region’s industrial expansion and is seeing its role elevated with more product coming from Mexico. Over the last several years, road and bridge infrastructure improvements throughout Mexico’s southwestern regions have laid the groundwork for increased traffic of produce-carrying trucks headed northeast to the border area. Ports of entry throughout the RGV have become the top destinations for agricultural imports, surpassing the longtime leader of Nogales, Ariz. This has heightened cross-border trade activity throughout the South Texas ports of entry. Most notably, the Pharr, Texas, port of entry has increased the most in terms of activity, which has led to greater absorption and development of industrial product throughout the McAllen metro area. The prime example of this infrastructural development is the Baluarte Bicentennial Bridge. The 3,700-foot, cable-stayed bridge opened in 2013, connecting the Mexican coastal city of Mazatlan to the inland port of Durango and shortening delivery times for product en route to the U.S. border by four to six hours. As a result, a significant amount of the new industrial development in recent years has centered on cold storage facilities. …
Businesses and industries whose supply chains are tied to Port Houston are dealing with tariffs on select imports, volatile energy markets and a one-two punch of rising rents and construction costs for any industrial space they want to lease or have developed for them. But based on the performance of Houston’s nearby Southeast industrial submarket, these larger geopolitical and economic forces are wreaking minimal havoc. An increasingly diverse mix of industrial users has landed in Houston over the past five or so years. These tenants include national retailers and third-party logistics (3PL) firms that see Houston as an emerging regional distribution hub, as well as suppliers of durable consumer goods and companies that service the petrochemicals industry. The port submarket is seeing heightened activity from all of the above. At the same time, the infrastructure within Port Houston has expanded. Ship channels are in the process of being deepened and widened. Special equipment has been introduced that allows overweight containers to safely and legally leave the port and hit the roadways. Demand for rail-served properties is growing, particularly on the north side of the Houston Ship Channel, leading to more of those projects. And Harris County has begun work on …
Despite the rise of the gig economy, the explosion of coworking concepts and the move toward greater density among office-using companies, America’s office market is maintaining steady growth and balance, thanks to the exceptional job growth of this cycle. According to Costar Group, the national office vacancy rate currently stands at a 9.8 percent. Developers delivered approximately 59.3 million square feet of new product over the last 12 months. National net absorption of 56.6 million square feet during that period suggests that the market is quite close to equilibrium. According to the most current available data from the Bureau of Labor Statistics (BLS) at the time of this writing, between December 2018 and January 2019, American nonfarm payrolls added about 525,000 new jobs. The BLS reported substantially lower job growth in February, with just 20,000 new positions added. However, most economists expect that figure to be revised upward as the effects of Mother Nature and the government shutdown wear off. While office properties only capture a portion of that activity, job growth expectations are still the main criteria by which office market health is evaluated. By that logic, the office markets of Texas’ four largest cities should all post strong …
The current pace of development and absorption of manufacturing and warehousing space in El Paso reveals just how closely the local economy is linked to that of its sister city across the border, Ciudad Juárez. Mexico’s maquiladora system allows foreign companies to produce and export materials to that company’s home country, largely on a duty- and tariff-free basis. When the North American Free Trade Agreement (NAFTA) was passed in the mid-1990s, maquiladora activity saw its largest historical increase while still facing considerable competition from China for foreign investment. But when American manufacturers realized that outsourcing production to China didn’t translate to more efficient supply chains, they once again looked toward Mexico, which also boasted strong supplies of affordable labor. With the United States now locked in a trade dispute with China, the economic development initiatives offered by the current Mexican Presidential Administration and the threat of a drastically renegotiated NAFTA agreement having passed, American companies are beginning to return to Mexico. Ciudad Juárez is among the Mexican cities benefitting most from this activity, and it is translating to greater demand for storage and distribution space in El Paso. Many maquiladora companies count end users in southwestern U.S. markets as significant …
It’s not often that a single project captures an office market’s growth and evolution over a 40-year period. But that is precisely what’s happening in El Paso. WestStar Tower, a 19-story, Class A building, is the first project of its kind to be built in El Paso in 40 years since the 415,000-square-foot Stanton Tower was constructed for El Paso Natural Gas. With co-developers Hunt Cos. and WestStar Bank beginning vertical construction of the 262,000-square-foot building last summer, El Paso’s skyline is set to change considerably upon its completion in late 2020. The symbolism of WestStar Tower to El Paso is not unlike the relationship between Frost Tower and San Antonio, another city that was starved of major Class A office development throughout the 1990s and 2000s. With both cities experiencing steady job growth from local expansions and new relocations, developers of quality office product are viewing these markets in new lights. El Paso is also getting younger. According to recent research from El Paso’s economic development department, roughly 40 percent of the city’s 838,000 residents are under the age of 40. The median age is 31 and the city ranks in the Top 10 in terms of its appeal …