By Lupita Gutierrez-Garza, principal, and Christian Gutierrez, senior associate, Southern Commercial Real Estate Group
The impacts of COVID-19 on the retail sector in the Rio Grande Valley (RGV) have mirrored those of the rest of the country.
However, the way the region responded was different from the way it addressed past crises, such as natural disasters, and even very different from past responses to local problems like peso devaluations and drug cartel activity along the border.
Lupita Gutierrez-Garza, Southern Commercial Real Estate Group
The response was multifaceted and included many trial-and-error situations. But through sheer determination and quick thinking by local leadership, regional landlords and tenants managed to mitigate all the uncertainty to not only survive, but to thrive.
What made a difference in the region was the behind-the-scenes build-up of its economic infrastructure that has slowly been chipping away at the inequities the region has endured for years. Infrastructure build-up has been ongoing for over a decade and has come in many forms, including education and medical, industrial and logistics, aerospace technology and wind energy.
All of these sectors managed well during the peak of the pandemic and continued to expand at phenomenal paces. Their growth has piqued a lot of outside interest and investment from investors, thus generating new opportunities in the region.
As a result, the region is quietly transforming itself into a highly respected and recognized economic powerhouse. This infrastructure growth and expansion of these industries has contributed to the creation of more jobs and increases in disposable income, which is music to the ears of the retail and business services sectors.
In the RGV, regional and local developers added over 300,000 square feet of new retail space over the last couple of years. Despite these gains in supply, the insolvency rates for national retailers accelerated at a rapid pace, leaving 2020 as the year with the highest number of retail bankruptcies in over a decade.
Christian Gutierrez, Southern Commercial Real Estate Group
In the RGV, we saw several national retailers close, but these closures had minimal impact on overall sales volume. In addition, some small retailers in some rural cities benefitted from consumers shopping locally as COVID-19 invaded their communities and forced consumers to stay close to home.
For the most part, the retailers that closed were those that were struggling prior to COVID-19. The closures did impact occupancy rates in malls and power centers, however.
However, decimated foot traffic at smaller centers with essential retail was limited as consumers adjusted to guidance from the Centers for Disease Control. Ultimately, the community appreciated how many retailers reinvented themselves and tweaked their offerings and delivery of goods in response to the pandemic. Many residents saw this adaptation as a reflection of patience and cooperation that helped strengthen the region’s business outlook.
Grocers like H-E-B and big box retailers like Walmart, Sam’s Club, Costco, Target, Home Depot and Lowe’s came out relatively unscathed in 2020 as their broad merchandise mix managed to provide much-needed products to customers. Fast-casual dining concepts adjusted their modes of operating with curbside and delivery services. Many businesses developed apps to smooth the process and stay in tune with the times.
While some restaurants saw their sales drop as much as 20 to 30 percent, those figures have been climbing and getting back to normal over the last several months as vaccination has progressed. Landlords deserve kudos for their resilience and for working through these setbacks with their tenants. Granting concessions and restructuring leases and making other adjustments to keep business going was tough, and hopefully, all worth the effort and time spent to help small businesses survive.
The February 2021 report prepared by the Texas Comptroller was interesting in that it tracked sales for the last quarter of 2020, which is critical for many retailers and often considered the make-or-break quarter. According to the findings of this report, the RGV significantly outperformed the state averages and stood its ground among other border markets.
The end-of-year tabulations showed much of the same, with the RGV managing to garner some growth and outperform certain metros in certain categories. For example, in 2020, the RGV posted year-over-year growth of 8.2 percent in total retail sales, compared to just 2.4 percent for the entire state.
Overall, the retail sector in the RGV has managed to survive and thrive compared with many major cities across the state. As formidable retailers explore their options in Texas, the RGV is quickly making it to their short lists. New, first-to-market concepts are making also the rounds throughout the region.
During the past year, the region saw national quick-service restaurants like Sonic, Jack in the Box, Chick-fil-A and Whataburger expand in the market. National fast casual dining concepts like Pieology, Firehouse Subs and Pokeworks were not far behind.
Well-capitalized local entrepreneurs have also found opportunities, and many plan to open additional concepts representing new types of cuisine. T.J. Maxx opened a new store in Harlingen; Burlington, Ross Dress for Less, Harbor Freight and others will follow by mid-2022. To meet this new demand, developers are moving dirt for retail centers in several cities, including McAllen, Harlingen, Mission and Donna.
This experience, as been horrific as it has been, has opened our eyes to just how much difference local contribution makes in terms of sustaining business. As the market continues to reopen, it will be interesting to observe how local shopping patterns change as consumers resume travel out of the area.
On the other hand, when the various border bridges finally reopen, it will be interesting to see how Mexican shoppers will once again play a role in the growth of the retail sector. For now, all eyes are on our economic infrastructure, with a focus on creating a good local workforce that significantly contributes to the RGV’s sustainability and on the construction market and any hiccups that might have on the economy.
— This article originally appeared in the May 2021 issue of Texas Real Estate Business magazine.