TEXAS SNAPSHOT, APRIL 2012

El Paso Retail Market

For years El Paso was thought of as a sleepy little outpost in far West Texas on the Mexican border. Many people from the rest of the state knew little about the city, and thought it well suited to be part of New Mexico. The economy was always fairly stable especially in the commercial real estate sector. There was never boom nor bust, just steady growth fueled internally. Arguably the biggest things to happen in El Paso were the construction of Interstate 10 and the Sun Bowl. That was of course until recently with the opening of the Texas Tech School of Medicine, and explosive growth at Fort Bliss. The Army post is in the last phases of a $4.5 billion expansion. That does not include a $1.5 billion, 250-acre Army medical campus, and VA Hospital that recently broke ground. It is estimated that Ft. Bliss’s population will expand by 40,000 troops and their families during the next few years. In spite of the economic downturn, El Paso’s future is as bright as ever. It has received many national accolades. Forbes recently ranked the city as having the No. 2 performing economy nationally in 2011. El Paso is the fifth largest city in Texas, with an estimated population of 800,000. Combined with Juarez, Mexico, and adjoining New Mexico counties, El Paso has a regional population in excess of 2.6 million. Steady growth should continue.

In the past, the city’s retail sector was highlighted by the contributions of Mexican shoppers from across the Rio Grande. The Golden Horseshoe, a retail area between downtown and the border, had the highest lease rates in the city due to the large amount of foot traffic. Walmart at Interstate 10 and Yarbrough has had the highest sales per-square-foot in the chain for years, largely due to shoppers from across the border. A recent large migration from Mexico has continued to help fuel the economy in general and the retail sector in particular.

El Paso’s retail scene for years was dominated by Bassett Center in central and two Simon Malls — Cielo Vista in central and Sunland Park on the westside. A number of power centers have been built east and west in recent years. The Outlet Shoppes of El Paso was constructed in the northwest, and most of the city’s growth is currently east, then northwest, followed by northeast.

Recent developments of note are the 461,000-square-foot Freedom Crossing at Ft. Bliss. The project was built in 2010 by Servicestar. Anchor tenants include the PX, Commissary and Grand Theater. Additionally, there is an 800-seat food court offering a variety of dining options, and Under Armor and Buffalo Wild Wings recently signed leases. The developers anticipate continued positive momentum. Asking lease rates and occupancies were not disclosed.

In addition, The Fountains at Farah broke ground recently. This is a 600,000 square foot upscale power town center in central El Paso. This property is on Interstate 10 across from Cielo Vista Mall. According to local reports, 500,000 square feet of LOIs have already been signed. The project is being developed by Centergy Retail LLC. Asking lease rates are said to be in the mid-teens to mid-20s per-square-foot annually on a triple-net basis for anchor space. Smaller spaces have asking rates in the $30 to $40 per-square-foot range.

MIMCO, one of El Paso’s two largest local retail developers, reports healthy activity and occupancies. Its new retail center in northeast El Paso has already reached 90 percent occupancy. The project is more than 30,000 square feet and was built in October 2011. Tenants include Pets Barn, Wing Daddy’s and Little Caesar’s. Groundbreaking is near on a 10-acre, 80,000-square-foot project in Northwest El Paso. It will be located in the southwest quadrant of I-10 and Artcraft, and a large anchor has reportedly been secured. MIMCO has plans to redevelop a 30,000-square-foot office building on Mesa Street near University of Texas at El Paso (UTEP) with an added retail component. Northwest El Paso has seen robust activity in recent years.

Overall, retail activity and optimism appear strong for 2012 and improvement is expected during the next year. Estimated occupancy is approximately 90 percent with typical lease rates ranging from $10 to $25 per-square-foot on a triple-net basis, mostly depending on size, location and improvements. Also, rates have remained steady. The City of El Paso has adopted Smart Code as a zoning option, which embraces high-density ,mixed-use walkable developments. The City is offering tax incentives for developers who use the code. Monticello, a 300-acre development on the Westside, is the first taker. Apartments are under construction with some retail likely to follow. Other developers around El Paso are looking at the option as well.

— Max Prestridge, vice president of sales and leasing, NAI El Paso

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