High Retail Occupancy in Fort Worth Drives Rate Increases, New Development

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The Texas economy has recovered quickly from the recession, and Fort Worth is a prime example of a flourishing commercial real estate market. Leasing activity in the city’s retail market is high, despite low inventory and increased rental rates. Cap rates are low, investment sales have increased, and the scarce inventory has prompted multiple new developments.

Incredible leasing activity involving both national and local credit retailers has been seen across the market, and the activity is projected to continue throughout the year. In particular, there are many high-end grocers entering the Tarrant County market, such as H-E-B, Sprouts and Whole Foods, to name a few.

With leasing activity increasing in the market, there is a high demand for retail space, but there is a low supply, evident in the current 8 percent vacancy rate. The limited availability of leasable retail space coupled with high demand in the market has continued to drive up rents — rates have increased by 5.5 percent since the first quarter of 2013 — and has also begun to affect sales prices.

The average asking price for Tarrant County retail investment properties currently stands at $146 per square foot, compared to $142 per square foot in the first quarter of 2014 and $120 per square foot in 2013, representing a strong upward trend. And, as in the case of retail space for lease, the present volume of sale listings is low, coming in 12 percent below the volume seen in 2013.

More and more, owners are electing to hold on to their properties as rental rates and occupancy levels continue to rise.

Product Preferences

Single-tenant net-leased properties continue to be the product in the highest demand from investors, with cap rates at cyclical lows. With continued low returns available on traditional fixed-income investments, many investors who have not previously invested in real estate are now investing in single-tenant net-leased properties while the market is good.

That being said, the favorable demographic trends and population growth of the Dallas-Fort Worth Metroplex and Tarrant County have made the area a target for multi-tenant retail investors with hopes of capturing higher returns. As a result, quality retail properties with national credit tenants are commanding cap rates below 7 percent.

Breaking Ground

A large portion of existing vacancies in the market have been absorbed, and the high demand and low supply has spurred new developments, primarily in the north and southwest areas of Fort Worth. These new developments range from small, unanchored strip shopping centers to large anchored power centers.

For example, Trademark Property Company is currently underway on three large mixed-use projects, including Waterside, a 63-acre, 150,000- to 225,000-square-foot mixed-use development on Bryant Irvin Road set to complete in 2015; WestBend, a 275,000-square-foot mixed-use development on South University Drive; and the second phase of Alliance Town Center, a joint venture with Hillwood Development Inc. that will add approximately 87,500 square feet with completion expected in summer 2014.

Additionally, pre-leasing has begun on Alliance Town Center’s lifestyle expansion, known as Main Street, which is scheduled to open early 2015 featuring an estimated 175,000 square feet of specialty retail and restaurants.

Overall, the Fort Worth retail market is thriving and is predicted to continue down this positive path throughout 2014 and the coming years. With a population of 750,000 and counting, the city should continue to support a vibrant commercial real estate environment.

— By Jon McDaniel, President, NAI Robert Lynn Fort Worth Retail Division. This article first appeared in the May 2014 issue of Texas Real Estate Business magazine.

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