The Dallas-Fort Worth economy absorbed 3.8 million square feet of retail space in 2016, which was the second-highest level since 2000 and exceeded only by 2015.
Developers have learned from past mistakes in the 1980s when strong growth led to overbuilding, said Bob Young, executive managing director at Weitzman.
“Back then, this was the cycle: Boom. Boom. Crash. Repeat,” he said Wednesday at the firm’s annual breakfast to outline the state of retail real estate in North Texas. “Now it’s grow and grow and grow and then maybe, just maybe, consider a new retail center.”
The local market ended 2016 with a record-high occupancy of 92.6 percent. “That represents a full percentage point higher than the prior year and it takes a lot of momentum to push occupancy up a full percentage point on an inventory of 193 million square feet,” Young said.
The back-to-back years of momentum is expected to continue in 2017, Young said, and he forecast businesses will lease another 4 million square feet of retail and restaurant space in 2017.
The higher number for 2017 reflects completion of major projects including Legacy West in Plano, The Star in Frisco and the Shops at Clearfork in Fort Worth, where Neiman Marcus is scheduled to open next month. It’s moving from Hulen Mall.
Grocers Kroger and WinCo Foods were active in both new construction and taking older space. Kroger built new stores Castle Hills and Prosper and WinCo filled in a former Sports Authority in Arlington.
Despite all the new corporate relocations and population growth, developers aren’t “overbuilding retail,” he said, in ways that every previous strong economic cycle has left the area with “a huge jump in new retail inventory.”
Last year, developers completed 2 million square feet of retail, which was low compared to prior boom years. That led to the strongest existing-center market in memory, he said.
“Now older centers are full as well, thanks to a combination of renovations, in-line leasing and anchors like (Plano-based) At Home that redeveloped vacant boxes,” Young said.
In contrast, at the bottom of the cycle in 1989, “things got so bad that the landlord for 16 percent of community centers was the Resolution Trust Corporation,” Young said. The RTC was an asset management operator formed by the federal government to handle properties foreclosed on during the real estate and savings and loan-led recession in several markets including D-FW.
Mixed-use retail projects, such as the McKinney & Olive tower with a two-level Del Frisco’s with an entrance on the street, are among the most high-profile new projects. As a category, it had the highest occupancy rate (95.5 percent) of all types of retail space in 2016. However, it’s the smallest total space, with only 5.8 million square feet, Young said.
These projects which include Legacy West “are sexy but challenging,” Young said. “They require density and a lot more. They only work if each component can succeed on its own.”
Home of the grocery store
Community centers which are mostly anchored by a grocery store absorbed 1.8 million square feet of new and existing space, which was the most for any type of shopping center in 2016.
To illustrate how strong community centers are, Young said, when Fresh Market closed its four stores in May, it only took eight months before Tom Thumb opened in two the locations.
Minyard Sun Fresh Markets were snapped up by Fiesta Mart and H-E-B. Two of those stores H-E-B is turning into Central Market stores.
Weitzman’s annual real estate report dates back more than five decades. It’s based on a survey of 1,408 shopping centers of at least 25,000 square feet in 42 Dallas-Fort Worth submarkets for a total of 193 million square feet.