DFW Retail Real Estate – The Best is Yet to Come

It’s been a rough couple of years as far as retail real estate is concerned, but North Texas retailers and building owners alike are optimistic. Why? Texas leads the nation in job growth, with Dallas-Fort Worth coming in first place and Houston a close second. The Dallas metro area specifically reported a growth rate of 2.5% for May 2011, double the nation’s rate, according to research by the Real Estate Center at Texas A&M University.

The improved economy in Texas could translate into increased real estate activity for North Texas. How?
  • Job growth leads to more disposable income and increased spending
  • Increases in retail sales lead to store expansions
  • Store expansions lead to construction or redevelopment of shopping centers in strong markets
North Texas is a hot market for store expansion. Supermarket specialty store Trader Joe’s announced plans to open in North Texas, and Costco also plans to expand in the DFW area during the coming year.

Although real estate in the DFW area is beginning to pick up, new retail construction is still at a low following the large number of store closings during the recession. According to Steve Lieberman of Dallas-based Retail Connection, there has been “very little new development which has measurably contributed to the stabilization of our market.” He expects it will be “another 18 to 24 months before we see a material amount of new ground-up projects initiated.” Instead, the focus now is on redeveloping existing centers.

A good example of this — Lieberman’s firm recently purchased the Village on the Parkway shopping center in Addison. The firm plans on performing many renovations to the property.

The supply and demand dynamic has stabilized as a result of placing focus on renovations versus new construction. However, many of the best retail spaces have already been filled. With no new building sites, there’s likely to be a shift in the balance of power back to the landlords. Last year, rental rates dropped about 2.5%, but these are likely to even back out again. According to Lieberman, his company is seeing fewer concessions on rent and tenant allowance, and more extensions of existing lease terms. Additionally, landlords and retailers are better structuring their transactions. This includes retailers investing in their own build-out of spaces, thus resulting in lower rent.

These trends are good news for the retail real estate market and good news for consumers. Fewer empty windows in shopping centers may be on the horizon.