If you want to understand the state of Texas’ retail market as of the first quarter of 2019, just look at the numbers.
In terms of jobs, Texas is on track to add 191,000 net new jobs this year, according to the Federal Reserve Bank of Dallas. Much of that growth will be in our major metro markets of Austin, Dallas-Fort Worth (DFW), Houston and San Antonio.
In Austin, for example, unemployment stood at an extremely low 2.7 percent as of March 2019. DFW’s rate is a healthy 3.3 percent; Houston’s is 3.7 percent and San Antonio’s is 3.1 percent. All of these rates are considered strong.
Marshall Mills, Weitzman
Population growth is a big driver of retail demand and in terms of this metric, all of our major Texas metros are national leaders.
The country has only 11 cities with 1 million people or more within city limits. Three of those — Dallas, Houston and San Antonio — are in Texas. And by 2020, Austin is on track to be the fourth.
This healthy job and population growth are big drivers for our retail markets. Plus, near-record-low development at a time of steady demand is driving expanding concepts to lease in existing retail projects.
As a result, all four of the state’s major metros are posting record or near-record highs in occupancy, despite overblown talk of “retail armageddon.”
Strong Growth Throughout
All four of Texas’ major metro retail markets are enjoying strong performances in terms of occupancy and demand. The markets all also report new construction levels that are at or near record lows, which boosts overall occupancy by driving expanding concepts to existing spaces in established submarkets.
The lack of new supply at a time of healthy demand, combined with the increasing densities and incomes of established submarkets, is leading to a new round of investment in existing centers.
Developers are renovating older centers in submarkets that are experiencing increasing densities and incomes. The renovations reconfigure yesterday’s tired retail projects to create spaces that work for today’s concepts. In the process, expanding small concepts get the modern spaces they need to bring much-needed shops and services to growing populations.
Austin: Strongest in Texas
The Austin area currently reports 95.8 percent retail occupancy, making it the strongest market in Texas in this regard. The occupancy rate is based on a retail market inventory of 49.5 million square feet in projects with 25,000 square feet or more of retail space.
During the past year, Austin added only 670,000 square feet of space in only a handful of new projects, with anchors that included Costco and Randalls grocery store. The majority of anchor activity, in fact, was in existing retail, with space being backfilled by concepts like Old Navy, AMC Theatres, Marshalls, Petco, H Mart, 99 Ranch Market.
We are seeing more construction activity this year, with new projects anchored by the likes of Whole Foods Market, H-E-B and LA Fitness and major mixed-use projects with significant specialty retail components.
DFW: Retail Stability
DFW is currently enjoying one of its longest periods of retail estate stability, with several consecutive years of occupancy that have exceeded the market’s previous high point of 92 percent in 1984. Even closings from failed or struggling legacy retailers like Toys ‘R’ Us and Sears have had little impact on overall occupancy, which sits at 92.5 percent.
During the past year, DFW only added 3.5 million square feet of new space — barely a rounding error on a market that has an inventory of approximately 200 million square feet. New anchors include grocery stores like Walmart and Kroger, power retailers like T.J. Maxx, Petco and At Home and entertainment concepts including Alamo Drafthouse Cinema and AMC.
As a result of conservative construction and healthy leasing, every center category except malls (87.5 percent) is enjoying strong occupancy rates. In fact, the neighborhood retail category in DFW is posting occupancy of 90.1 percent, the first time its occupancy has reached 90 percent or more since Weitzman first started its market survey three decades ago.
Houston: Grocery Drivers
Houston is at a healthy 94 percent retail occupancy on an inventory of 160.5 million square feet.
Construction during the past year added 2.6 million square feet, well below the totals recorded a decade ago, when new space added totaled roughly 5 million square feet a year on average. New construction was driven by leading grocer H-E-B, which added five locations for its traditional store format and one for its Joe V’s Smart Shop value-oriented concept. Whole Foods and Kroger also added new stores, along with some power retailers and entertainment concepts like Alamo Drafthouse and music-focused The Rustic.
Texas-based grocer H-E-B is one of the anchoring retailers at Buffalo Heights, a mixed-use development in Houston’s Memorial Park area. Demand for groceries is fueling a significant part of Houston’s new retail construction and leasing activity.
New construction in Houston in 2019 and for the past few years has largely been located along the Grand Parkway, the name of a new highway that upon completion will cover 180 miles through some of the metro area’s fastest-growing suburbs. The market is also seeing a number of urban retail redevelopments, particularly in Houston’s densifying areas like the Heights and Midtown.
San Antonio: Vacancy vs. Construction
San Antonio’s retail occupancy rate is 94 percent against an inventory of 46.1 million square feet.
The market added only 275,000 square feet last year, with the construction dominated by entertainment anchors. That 2018 total has already been exceeded with the addition of only one store, IKEA.
The furniture giant opened its first South Texas store in February 2019 at the intersection of Interstate 35 and Loop 1604 in Live Oak, a suburb of San Antonio. The IKEA is the first anchor for a 2020 regional retail project, Live Oak Town Center, which will be built in phases and total more than 800,000 square feet upon completion.
—By Marshall Mills, president and CEO, Weitzman. This article first appeared in the May 2019 issue of Texas Real Estate Business magazine.