DALLAS—Unlike previous downturns such as the Great Recession of2008-2009, the Dallas-Fort Worth retail real estate market enteredthe current pandemic-induced downturn from a position of strength.One of retail's benefits going into the pandemic was itsback-to-back years of healthy performance as well as a decade ofnear-historic low retail construction that kept oversupply to aminimum, according to a mid-year report by Weitzman.

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That overall health is combined with programs such as PPP loansand landlords' willingness to collaborate with tenants on workoutsthat often include rent deferrals. These programs have helped limitwhat otherwise could have been a more significant decline inoverall retail occupancy. However, the metro area's retailers,restaurants and retail landlords are now struggling to identify thebest methods to deal with the unprecedented challenge posed byCOVID-19, which has resulted in increased unemployment, greatlyreduced shopper traffic and mandated closings or reduced capacitylimits.

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"This report is unlike any previous mid-year retail report inWeitzman's 30-year history," Marshall Mills, president and CEO ofWeitzman, tells GlobeSt.com. "Never before have we faced achallenge like COVID-19, which hit hard at every segment of oureconomies and our lives, and seemingly all at once. The pandemic isaffecting Texas' retail markets and its retailers, and we are notsurprisingly reporting occupancy declines. But I have to tell you,without the evolution retail has undergone during the past fewyears, it could be much worse. Brick-and-mortar retailing has spentthese years transforming with digital marketing and innovationslike curbside, takeout and delivery to compete with onlineretailers of Amazon. As a result, our industry finds itself betterprepared to perform during the social distancing required bycurrent health crisis."

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At mid-year 2020, the overall market occupancy stood at 92.6%,down from 93.4% at year-end 2019. The occupancy rate is based on aDFW retail market inventory of 200.2 million square feet inshopping centers with 25,000 square feet or more.

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The market took a hit during the first half of 2020 as thepandemic resulted in numerous closings (including some fromconcepts that were already struggling pre-pandemic) or announcedclosings from chains such as JCPenney, Pier 1, Tuesday Morning andStage Stores. For example, JCPenney is closing its Music City Malllocation in Lewisville, Belk closed its 180,000-square-foot storeat Dallas Galleria in March, Nordstrom announced its Hurst locationwill close in 2021, Tuesday Morning announced six store closings,Pier 1 will close its 14 area locations as it goes out of business,and both 24-Hour Fitness and Gold's Gym closed numerouslocations.

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The overall vacancy hit is reduced somewhat because many of thestores set to close are smaller format. For example, Neiman'soff-price concept Last Call will close two area stores in thesecond half of the year but creating less than 28,000 square feetof total vacancy, Microsoft closed two stores accounting for lessthan 9,000 square feet of total space and Sur La Table will closeits Plano store, which is around 6,500 square feet.

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Most of the stores will not shutter completely until liquidationsales are completed but these concepts, adding to one-off closingsof independent concepts, are resulting in more than 1.6 millionsquare feet of anchor and junior anchor vacancy. The market is oncourse for additional closings, particularly if the duration of thepandemic continues through 2020 and into 2021. For example, BedBath & Beyond has announced hundreds of store closings,although targeted stores have yet to be identified.

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Even if occupancy declines another point or two by year-end2020, the market will still report its eighth consecutive year ofDFW retail occupancy above 90%. When occupancy reached 90% in 2013,it marked the first time that point was reached in a decade. Bycontrast, during the previous down cycle of 2008-2009, overalloccupancy dropped to 86%.

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A further occupancy decline for DFW is expected, although thescope has yet to be determined because of the uncertain duration ofthe pandemic. The downturn should be limited if a COVID-19treatment and/or vaccine are developed in the near term, andconsumers again feel safe with shopping, dining and entertainmentactivities.

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"Until that sense of safety is achieved and consumer confidenceincreases, it is up to the retail real estate industry andnational, state and local governments to help lessen the massivechallenges faced by retailers and restaurants during the currentpandemic," said Herb Weitzman, executive chairman of Weitzman.

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Leasing in existing retail projects continues, thanks to aneconomy that continues to create demand through residential andpopulation growth. The leasing of existing retail projectscontributes to occupancy because these leases represent theabsorption of existing space.

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Based on projects opening or scheduled to open, the market is ontrack to add approximately 1.3 million square feet in new andexpanded retail projects during 2020. During 2019, the marketreported new construction of only 1.7 million square feet and 3.5million square feet in 2018.

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The new space deliveries on track for 2020 remain conservativeand reflect not only construction delays and caution during thepandemic but the trends of limited anchor expansions, existingproject redevelopments, and mixed-use and unanchored retailprojects (which tend to be well under 100,000 square feet), saysthe Weitzman report.

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Conservative construction helped avoid the overbuilding thatmarked previous periods of strong retail market performance.However, it also reflects the continued contraction of retail dueto several factors, including the Amazon effect.

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Overall, Weitzman expects 2020 to report construction ofapproximately 1.2 million square feet based on projects underway orannounced for completion. The largest project for 2020 is theexpansion of Grandscape in The Colony, where Scheels added 331,000square feet of new retail space.

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The outlook for the remainder of 2020 calls for a decrease inoccupancy, which should be mitigated in part due to extremelyconservative new construction. Additionally, the DFW marketcontinues to generate the type of population and residential growththat boosts retail business.

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In terms of population growth, a March 2020 Census report notedthat DFW gained more residents since 2010 than any other metro areain the country. Overall, the metro area added more than 1 millionpeople in less than a decade, the report states.

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Prior to the pandemic, DFW had a 117-month streak of positivejob growth, the strongest employment market in its history. But,job losses due to the pandemic are reflected in the May 2020unemployment rate of 12.3% versus the April rate of 12.8%. Jobgrowth returned to DFW in May after two consecutive months ofdeclines, CoStar reports, with the market adding 78,000 jobs fromApril to May. The initial lockdown of nonessential businesses andsocial distancing measures gutted the employment base, sendinglevels retrograde to 2016.

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DFW single-family construction and new home sales were up duringthe first quarter of 2020 versus the same period in 2019. More than8,000 new single-family homes started during first quarter 2020,according to MetroStudy, and the annualized rate shows almost34,000 new single-family homes. Starts and sales declined duringthe second quarter due to the pandemic, according to the RealEstate Center at Texas A&M, yet DFW and Houston still led thenation in homebuilding activity.

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In terms of multifamily, DFW is underway with around 29,000units, according to CoStar, but occupancy and rent growth are beingchallenged by the pandemic. Overall occupancy, however, remainsfairly healthy.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.