TEXAS SNAPSHOT, SEPTEMBER 2011

Dallas Retail Market

Watson

The Dallas-Fort Worth metroplex is the largest metropolitan area in the south, connected to the world via five interstate highways, two railroads and Dallas-Fort Worth International Airport, one of the busiest airports in the world. With more than 6 million residents and 3 million jobs, Dallas is the heart of the north Texas economy.

The market is in a state of evolution. Dallas-Fort Worth benefits from above-average job and population growth fueled by quality of life, affordability, a young workforce and a pro-business environment. Nonetheless, the retail market is challenged by an uncertain economy, cautious consumer sentiment, slower big-box and shop space growth, and the potential impact of the Internet siphoning retail sales from brick-and-mortar stores.

Class A quality anchored retail properties are in strong demand resulting in stable to improving occupancy levels and rental rates, while Class B and C retail properties are not having the same luck. Distressed retail properties have the potential, in certain submarkets, to create downward pressure on lease rates and property values. However, many distressed properties are being held off the market while ownership pursues aggressive leasing plans to create additional value.

Developers are facing several challenges in getting new projects off the ground including the large amount of retail space existing in the new growth suburban markets, the unwillingness of national retailers to pay the market rent rates needed to secure financing for construction, the challenged lending markets, and a reduction in small shop retailer demand.

Most of the new development activity is in the grocery store segment with Kroger, Aldi, Tom Thumb, Walmart Supercenter, Neighborhood Market, Whole Foods and HEB all actively reviewing opportunities. These grocers will continue to seek growth in areas currently underserved due to low store counts, lower quality competition and/or solid existing and projected population growth.   For the most part, their focus is to develop stores in established growing markets including Flower Mound, Southlake, Keller, Allen, north Fort Worth, Mansfield, Frisco, Rockwall, Forney, and uptown Dallas.

In –fill development is also very active with most grocers, discounters, and restaurants all pursuing in-fill strategies. TimberCreek Crossing will open this fall at Northwest Highway and Skillman in Dallas with a two-story Walmart Supercenter/Sam’s Club and JC Penney anchoring the project.  Kroger is building a new store on the site of the former Elliot’s Hardware on Maple Avenue in Dallas with an additional store on Central Expressway and Haskell at the site of the former Loews Theatre.

While the national economy continues to be choppy and consumer sentiment is muted, the Dallas-Fort Worth retail market remains stable and is seeing signs of growth through positive space absorption, limited new development and positive comprehensive sales.

— Dan Watson is principal of StreetLevel Investments with EDGE Realty Partners.

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