As the number of jobs and people in the Rio Grande Valley (RGV) grows, the region’s retail market holds steady. Historically, vacancy in this market tends to hover between 5 and 7 percent.
So the current retail vacancy rate in the McAllen-Edinburg-Mission MSA, which according to CoStar Group is 4.5 percent, represents a couple different trends.
First, the vacancy figure illustrates positive absorption of newly constructed retail space. In 2016 and 2017, the market added about 770,000 and 675,000 square feet, respectively, its highest supply additions in nearly a decade.
Charles Marina, First American Realty Co.
Second, the diminished vacancy rate suggests that new retailers are entering the McAllen MSA, which can be a gauge for the rest of the RGV. In actuality, much of the new space is being leased to retailers that already have a presence in the valley. One might think the RGV is too small a market to support healthy same-store operations, but this is not the case. Best Buy, Walmart and Ulta Beauty can attest to this.
A Dominant Sector
There is a common thread that unites these newcomers, and it involves single-family development. According to the latest HUD data available, single-family home sales increased 3 percent year-over-year in 2017.
More than 1,200 single-family residences are currently under construction to support a population that has grown by 1.5 percent annually since 2010. In addition, HUD projects that demand for housing in the area will necessitate the construction of nearly 10,000 new single- and multifamily units by April 2020.
Within those numbers we see major opportunity for retailers whose products and services are exclusively geared toward homeowners. Retailers that specialize in outfitting the foundations of a home — flooring, tile, cabinet firms — are seeing as much success as merchandisers that help furnish and decorate homes. HomeGoods and At Home recently opened new stores in the RGV to meet this demand.
In other words, if we’re talking about a retailer with a product or service that is tied to building or outfitting a home, that business is probably doing very well in the RGV right now.
It’s not uncommon in this market for entire subdivisions to sell out within a few short months after coming on line. Houses at all price points are moving quickly, and the northwest side of the McAllen metro area in particular is exploding with new development.
Other Contributing Factors
Retail sales in the McAllen area also benefit from a vibrant medical real estate market. In recent years, the metro has seen rampant growth in its number of freestanding emergency rooms and medical office developments. Many RGV residents come to the area for medical treatment and do their daily needs shopping on the same trip.
Texas A&M University’s pledge to build a center for higher education in McAllen also has positive implications for the retail sector. However, it’s worth noting that any influx of students and 20-somethings is likely to generate continued sales growth for experiential retailers: restaurants, gyms and entertainment concepts.
The area’s restaurant scene has grown more competitive with the arrival of eateries such as Dallas-based Cowboy Chicken, Bob’s Steak and Chop House, Nothing Bundt Cakes and Zoës Kitchen. Fitness chains like Orangetheory Fitness, TruFit and CrossFit have also opened gyms recently in the valley.
Established entertainment firms like Main Event and Topgolf — both which are based in Texas — have recently committed to the RGV. Dallas-based Dave & Buster’s, which already has one location in McAllen, has also announced plans to open a new venue in Corpus Christi, suggesting that it might not be through with South Texas.
Ultimately, retail real estate in the RGV is much like life in the RGV: stable, but not often glamorous. This is not a market that is prone to overdevelopment, or one that is reliant on a key economic sector to sustain it. Lenders and developers in the retail space understand this.
Consequently, the retail markets of the McAllen area and the RGV as a whole are not likely to experience the epic store closures and repurposing of big box retail space that comprises all the fuss in major markets. There’s simply too much stability.
By Charles Marina, principal, First American Realty Co. This article first appeared in the May 2018 issue of Texas Real Estate Business magazine.