Housing, Labor Fundamentals Showcase Midland-Odessa Retail Market’s Potential
The Midland-Odessa retail market continues to get stronger, even with the slight dip in oil prices over the last year. West Texas Intermediate crude oil prices stood at $56.11 per barrel as of August 28, 2019.
The economy has remained very strong, with the average unemployment rate in the Midland and Odessa MSAs averaging 2.4 percent in 2018 — essentially full employment. That unemployment rate is also about two percentage points lower than it was in 2012.
Housing Drives Retail
This strong economic outlook for the Permian Basin oil and gas market is creating major demand for laborers in the area. According to a February 2019 article in the Midland Reporter-Telegram, the size of the Midland-Odessa workforce grew from 173,400 to 180,900 employees between 2017 and 2018.
This rapid growth has driven record development in the local housing market. Karr Ingham, an Amarillo economist who prepares the Midland-Odessa Regional Economic Index for the Midland Development Corp., noted that new housing starts set annual records across the board in 2018 — “and it wasn’t even close.”
The 1,778 new housing permits in 2018 exceeded 2017’s total of 1,330 by nearly 450 permits, or 33.7 percent. A record 322 permits were issued in the fourth quarter of last year, an increase of 32.5 percent from the fourth quarter of 2017. The 123 permits issued in December alone represented a 95.2 percent increase over the 63 issued in December 2017, per the Midland Reporter-Telegram. The value of building permits totaled $963.2 million in 2018, compared to $699.9 million in 2017.
Retail follows rooftops, so more retailers and investors are continuing to target the Midland-Odessa retail market for profitable opportunities. Average 2019 retail rents in the Midland-Odessa market have been mostly consistent with 2018, slightly decreasing by 10 cents per square foot. However, occupancy has remained strong, with the market at 92 percent as of the second quarter of 2019, according to Reis.
The growth of the labor market has also led to a substantial increase in consumer spending across the area. According to the Texas Comptroller, gross retail sales last year totaled $8.6 billion in the combined Midland and Odessa MSAs — 20 percent higher than 2017.
As one might expect, this strong increase in consumer spending has convinced more retailers to invest in the Midland-Odessa market For instance, Walk-On’s Bistreaux & Bar is opening a restaurant in Midland off Loop 250 and in Odessa at Parks Legado Town Center.
Dallas-based Crab Station Oyster Bar is opening restaurants in both Midland at Kimber-Lea Place and Odessa at Sherwood Village Shopping Center. Construction is also underway for Midland’s first Raising Cane’s restaurant, which will be located next to H-E-B in front of the new Delta Hotel by Marriott, which is also under construction.
Following an incredibly strong 2018, what’s the outlook for the remainder of 2019? The large supply of new housing that hit the market in the past year, combined with a slight dip in oil prices, has caused a shift in single-family housing construction.
According to Midland Economic Development Corp., new single-family residence permits decreased 56 percent from March 2018 to March 2019. However, Midland is still seeing strong growth in other metrics, including taxable spending, airline boardings, average home prices, wage and salary employment and hotel/motel tax receipts, all of which are up from where they were in 2018.
According to the EDC, as of March 2019, Midland oil and gas employment was up 7.3 percent from where it was in March 2018, and the unemployment rate was down to just 2.1 percent.
As the market continues to heat up, Midland-Odessa will remain an enticing target for retail investors across the nation. One particular property type that investors are currently focusing on is value-add shopping centers.
For example, Coldwell Banker Commercial Capital Advisors recently represented a Lubbock investor in the acquisition of a redevelopment opportunity on 42nd Street in Odessa. This property is situated on over 10 acres and consists primarily of multi-tenant office buildings. The developer plans to add retailers to pad sites, with more office and retail spaces in back.
Coldwell Banker also recently represented the buyer in the acquisition of the 41,000-square-foot Mesa Verde Shopping Center in Midland. This was an off-market transaction, and the buyer plans to perform a major remodel at the center this year.
Overall, the outlooks for rent growth and investment sales volume are looking positive for the Midland-Odessa retail market in 2019 and 2020. With the area’s rapid growth, retailers should definitely consider expanding within or entering both of these markets.
—By Eric Eberhardt, CCIM, investment sales specialist, Coldwell Banker Commercial. This article first appeared in the September 2019 issue of Texas Real Estate Business magazine.