Texas Market Reports

Twenty years ago, if you were to make the 100-mile drive along Interstate 5 from Los Angeles to San Diego, you’d be driving through crop fields, ranchlands and vast tracts of undeveloped land. Today, that same corridor in southern California is defined by commercial and residential development, so much so that it’s hard to tell where one city ends and another one begins. In recent years, California has become a feeder of the growing Texas population as businesses and households alike seek the tax benefits of relocating from the West Coast to Texas. Central Texas has been the landing spot for many of those firms and families as well. Consequently, the region’s overall population growth is laying the groundwork for a similar type of transformation along the Interstate 35 corridor connecting Austin and San Antonio. While retail normally follows rooftops, in Central Texas we see retail developers and investors — as well as their counterparts in the industrial space — targeting these markets in advance of the residential building boom that they feel is sure to come. In addition, the remarkable population growth of both of the corridor’s anchoring cities has cemented its role as a rising star in terms …

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 …

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 …

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 …