It’s no secret retail vacancies in the Dallas-Fort Worth (DFW) area are at all-time lows. Vacancy rates at the end of first quarter 2017 were 4.6 percent, down from 5.5 percent a year ago, according to CoStar. More tenants are actively looking for the right spaces for their businesses so the retail sector is not overbuilt. Junior anchor tenants have “right-sized” requirements, thus decreasing their space needs.
For example, Office Depot is downsizing its typical footprint from 24,000 square feet to 14,000 square feet. Grocery stores that have gone dark have been backfilled with fitness gyms, other grocers or entertainment-type tenants.
In addition, market rents jumped markedly from $30 per square foot plus NNNs to $35 to $40 per square foot plus NNNs in the high demand spaces. In Class A retail environments such as the Frisco Mile, rates are $50 to $65 per square foot plus NNNs.
Linda Zimmerman, Henry S. Miller
Even in the new 99 Ranch Market space in Frisco, rents are $50 per square foot plus NNNs and the tenants are not blinking. Requests for higher finish-outs are continuing, but tenants are willing to pay these higher rents in order to use the landlords’ money for their improvements.
Job and Housing Growth Fuel Retail Fire
What has allowed the retail boom to continue? The answer is the incredible corporate growth in the Dallas-Fort Worth area, mainly through corporate relocations.
This has led to job growth, which in turn has sparked a massive residential market that added 30,000 new single-family houses in 2016. Marcus & Millichap’s research has predicted 60,000 new single-family homes in 2017. All this new population in new housing developments needs services. Their high incomes, fast paced lifestyles and diverse cultures demand a new kind of retail tenant to accommodate them.
Multicultural Influences
Statistics show that people are spending more on eating out than at the grocery store. Lidl, a lower-cost grocery store, similar to Aldi and Winco Foods, is coming to the Dallas-Fort Worth market.
Restaurants reflect the demographics of a given area. Trends arrive here faster and are easily copied thanks to the Internet and the ability to constantly share information with a tech-savvy population. Different cultures bring their own restaurants, which offer a taste of what they are used to in new neighborhoods. Ethnic concepts are therefore dominating the market.
Likewise, healthy restaurants such as Poke Bowl, Vitality Bowls, Flower Child and Tru Foods Kitchen, along with healthy concepts like juice and smoothie bars, are dominating market growth.
Fitness is huge, with a constantly growing tenant base of various types of yoga and Pilates studios, Orangetheory Fitness, Planet Fitness, LA Fitness, Anytime Fitness, 24 Hour Fitness and many more.
Types of Retail
Many concepts are now more franchise-driven than corporate-driven. Potential franchisees are highly pursued and financing is more available for proven concepts such as pizza, hamburgers, chicken and ice cream.
In fact, there are more concepts looking for franchisees than franchisees buying in. Vendors need to find a way to more easily track down new franchisees.
The service industry is dominating retail centers and minimum space is being built on speculative basis. And isn’t it interesting that soft goods are very slim in the new markets?
In addition to franchises, omni-channel is another serious option that has completely changed the restaurant competition. It is easier and faster to order your food online and pick up. No waiting is important in our fast-paced lives.
Because the price of land seems to increase monthly, higher retail rents have caused mom-and-pop restaurants to take smaller spaces. So, based on these higher labor costs and rent rates, counter service has become more popular.
The news today is filled with an immense number of store closures. These retail closures are mainly hurting the malls. Power centers are in a better position, as they have strong anchors that attract tenants in a “drive up and in” arena.
Sears, J.C. Penny and other big box vacancies are easily being replaced, not only with discounters and home goods retailers but also with many entertainment and experience type tenants such as Glowzone, Jump Zone, Jump Street and Urban Air Trampoline. Entertainment concepts such as Flix Movie Theater and Grill, Studio Movie Grill, Lava Cantina in Grandscape, The Irving Music Factory and others are now anchor tenants.
The Takeaway
The retail market follows the housing market, which follows the job growth market. Therefore, it looks like Dallas-Fort Worth will continue to be in growth mode for at least for another year or two. So bring on the new retail concepts, because our developers are ready to build for them.
— By Linda Zimmerman, Senior Vice President of Retail, Henry S. Miller. This article first appeared in the June 2017 issue of Texas Real Estate Business Magazine.