The commercial real estate market for the Rio Grande Valley region, located in south Texas along the U.S.-Mexico border, has remained stable over the last couple of years. During the last half of 2012, there has been a general mood of optimism about 2013.
The U.S. economic crisis did play some havoc in the region and many projects lost some momentum. However, the region managed to dodge the bulk of the effects, as some noted projects and acquisitions did come to fruition, including CVS/pharmacy store openings. The company has plans to open 25 stores in this market. H-E-B Grocery opened a new H-E-B Plus concept in Pharr and remodeled and expanded one of its Brownsville stores. The grocery chain is planning another store opening in Palmhust, north of Mission, this year.
Other national retailers entering the market include Bass Pro Shop, Sam’s Club, Costco, LongHorn Steakhouse, Party Cityand Cinemark. The City of Pharrsaw the first Costcoin the market while McAllen added its second Sam’s Club. LongHorn Steakhouse is on a fast track and within 24 months will have opened five locations in the region. Additionally, Cinemark will be adding two theaters, including a state-of-the-art movie houseat the El Centro Mall in Pharr and a Cinemark Bistro in Edinburg.
Attractive Investment Opportunities
In general, well-situated shopping centers across the region have minimal vacancy and help enhance opportunities for national retailers, mostly franchises, which have entered the market in recent years. There are several active shopping centers across the region and include several high-profile retailers either expanding or entering the market. Bass Pro Shop celebrated its first anniversary in Harlingen and helped boost the city’s sale tax receipts into double digits for the first time in recent history. There are two new mid-size shopping centers in the pipeline for 2013 and several expansions across the region.
The office market has also made gains in at least two of the market areas within the Rio Grande Valley. As borrowing tightens for many of the professional office end users, their turn to office rental tightens the availability of professional office space. This opens up an opportunity for growth in this area.
Mexican tourists visit the Rio Grande Valley, bringing a substantial contribution to the local economy. According to a Dallas Fed Reserve economist, itis estimated, by some accounts, that Mexican tourists pump $8 billion to $9 billion in sales in the cities along the U.S.-Mexico borderand generate jobs in the service and tourism industry in the region.
Trends in the Rio Grande Valley
The major trends impacting the region remain much the same as in previous years and include an influx of affluent Mexican nationals seeking residency in the area. Most are seeking a safer place for their family considering the violence in their country. Many nationals are not only moving their families to the area but are moving their companies or setting up U.S. subsidiaries. Not to mention, they are also opening new business concepts and franchises in the area.
The region boasts a low cost of living index and a strong available work force, along with having among the lowest labor costs in the nation. Both of which of which have presented unique opportunities for manufacturers seeking the Made-in-USA labeling. There are at least five companies currently under construction or near completion on facilities that will add more than 2,000 manufacturing jobs in the region.
The continued trade with Mexico, Central America and South America will continue to boost the area’s image and significance to the Texas and U.S. economy. Currently, there are 13 ports of entry within a 65-mile stretch along the U.S.-Mexico border and there is a new rail bridge opening in 2013.
Acquisition Activity
Acquisition activity for the most part would increase if alternative financing opportunities for the area were developed. From a leasing perspective, the activity remains high but cost of entry for local and more regional users remain high as landlords prefer to offer deferred rent.
In general, retail has been a focus of most economic development entities across the region. However, the primary focus is the creation of jobs. For the most part, the region has managed to do well in the medical job creation front, but the next wave of jobs will be in manufacturing. Those opportunities may very well be in the region’s future as manufacturers seek the opportunity to have U.S.-made products and the costs of manufacturing in China become less advantageous. The region is sure to benefit from growth in the industrial sector and has the available qualified and trainable workforce, reasonable labor costs and is within close proximity to Mexico and all of the Americas.
The more diversified the employment base is in the area, the more comfortable the lenders will look at commercial projects in the region.
Hotspots for Development
Growth has been widespread in the region with few exceptions. Undoubtedly, one of the major areas of growth in the Rio Grande Valley is in McAllen and its surrounding areas. The city’s in-door shopping mall, La Plaza Mall, will be adding a second floor food court to make more room for much needed retail space to accommodate more specialty shops. According to the McAllen Chamber of Commerce, La Plaza Mall is the third-highest in per capita sales tax receipts in Texas.
Most of the growth is due to the healthy economic boost the city receives from Mexican tourists. The city’s proximity to Northern Mexico gives it a direct link to affluent Mexican tourists from Monterrey, Tampico and other metropolitan cities. This is not a new phenomena, but the recent events in Mexico related to the drug cartel has increased that activity and many Mexican tourists are now becoming residents in the area, creating a domino effect in other areas like housing.
It is fully expected that the growth in the region is likely to continue in 2013 and beyond. Other areas to note of high growth in McAllen include Valencia Marketplace with the Sam’s Club anchor in north McAllen. The shopping center will soon enter its next phase of development and the Palms Crossing continues to fill in with new retailers including LongHorn Steakhouse.
In Mission, west of McAllen, it too has experienced a great deal of growth and within three years has added several new shopping centers all concentrated within a three-mile radius. It is estimated the area will have added as much as 450,000 square feet of additional commercial space within the last three years.
Edinburg, home to the area’s largest university, University of Texas Edinburg, has seen a great deal of growth in the First Hartford development, Shoppes of the Rio Grande Valley. The center now has more than a million square feet of open-air shopping with plans for more retail growth in the area. More recently, Edinburg announced Cinemark’s plans to open up a Cinemark Bistro this year in the heart of the medical office district. Plus, Edinburg also managed to create the most manufacturing jobs the area has seen for the last 10 years.
Lastly, to the east of McAllen, the City of Pharr has garnered recognition with the opening of its first Costco, an H-E-B Plus and redevelopment of El Centro Mall with the new Cinemark. The city also has a plan to develop a new major shopping center north of Costco.
It seems that each city in Hidalgo County has experienced some positive development, including Weslaco, Alamo and San Juan. It is fully expected there will be other announcements in that area before years end. Cameron County is not that far behind. Brownsville has several shopping centers and restaurants under construction and there have been several new concepts opening.
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