Retail Growth in Plano-Frisco-McKinney Comes Full Circle
Twenty-five years ago, the Plano-Frisco-McKinney area was replete with open fields, cows and dirt roads.
Today, the intersection of State Highway 121 and the Dallas North Tollway is central to Dallas-Fort Worth’s (DFW) development activity. Every red light within a three-mile radius of that intersection has cars stacked 10 deep. The entire area is a metropolitan buzz of noise and activity.
The key to understanding how real estate markets — not just retail —in these cities changed so dramatically in less than 20 years lies in geography. The (DFW) metroplex consists of about 9,286 square miles, which is roughly double the size of the Los Angeles metro area, not to mention bigger than the combined size of Rhode Island and Connecticut.
The sheer mass of land in DFW and diverse city development policies ensure population densities and characters vary tremendously from one submarket to another. Consequently, retail real estate in the metroplex exists and thrives in pockets. Given the benefit of the expanded infrastructure that the Plano-Frisco-McKinney area has enjoyed over the last two decades, it comes as little surprise that the region would eventually be a magnet for rooftops — and associated retail activity.
CoStar Group identifies five submarkets within the region: Central Plano, West Plano, Frisco, West Frisco and McKinney. An analysis of the retail statistics between 2000 and 2018 puts the magnitude of this region’s growth into perspective.
Frisco, West Frisco and McKinney were substantially undeveloped at the turn of the millennium. In 2000, these three submarkets had less than 10 million square feet of retail space between them. The trio of submarkets enjoyed a healthy average occupancy rate of approximately 95 percent. Yet the volume of rooftops in the area at this time was not high enough to stimulate substantial new retail development.
Central and West Plano were more developed in the early 2000s, with a combined retail inventory of about 20 million square feet. Occupancy in these submarkets was stronger and rent growth higher, especially in West Plano.
Over the ensuing 18 years, retail supply levels in both Frisco submarkets, as well as in McKinney, have nearly tripled. Rents have risen by about 30 percent in each of these pockets. While new construction in the Plano submarkets has been more constrained, the area has still experienced rent growth of a similar magnitude.
While the basic forces of inflation and in-migration can undoubtedly account for some of the growth, the reality is that developers have simply begun to run out of available space within the urban core. And as office and multifamily developers have faced similar issues in terms of rising land costs in the urban core, they have pushed northward. As markets matured, retail development followed suit.
Mixed-Use Leads The Pack
The rise of e-commerce has sent retail real estate into a tizzy, forcing retailers and owners to explore new ways to reach consumers, including enhancing in-store shopping experiences and bolstering their online sales platforms. This effort also extends to the physical realm by targeting locations within mixed-use offerings, increased merchandising strategies and higher quality development standards.
From Mercer Crossing in Farmers Branch to Grandscape in The Colony, and then eastward to the thriving destinations that are Legacy West and Frisco Station, retailers across the northern side of the metroplex are finding success in mixed-use settings. The value that comes from positioning a store in walkable environments with quality uses including office, hospitality and urban apartments, and from being situated within true destination developments, simply cannot be understated.
For these reasons, retailers are willing to pay rents in excess of $25 (Plano) to $30 (Frisco) per square foot, with some developments achieving rents in excess of $45 per square foot if located in close proximity to high-density working and living areas. But as one might suspect in a highly trafficked development, finding space is becoming increasingly challenging.
Demand for retail space in a mixed-use environment is fueling construction of similar projects throughout the north-northeast side of Dallas. Hunt Realty recently purchased more than 2,500 acres in Frisco along the 380 Corridor for a mixed-use project that will deliver office, multifamily and civic components into addition to retail space. Furthermore, the Highway 380 Corridor has over 27 million square feet of proposed development underway. In nearby Allen, Howard Hughes Corp. is developing Monarch City, a 270-acre project that will feature retail/restaurant space, plus office, residential and hospitality components.
After years of being excluding from lists of “primary markets,” DFW is enjoying its moment in the sun, flourishing as a top market for job and population growth, corporate relocations and general quality of life. Particularly with regard to the second item in that series, the Plano-Frisco-McKinney area has been quite the beneficiary.
The impacts of these forces on demand for and absorption of retail real estate has been phenomenal, and there’s little reason to think it will slow as we finish 2018 and head into the new year.
— By Jason Claunch, owner, Catalyst Commercial Inc. This article first appeared in the October 2018 issue of Texas Real Estate Business magazine.