Dallas/Fort Worth's Retail Market Makes Second Best Showing in 15 Years

DALLAS-For the second time in 15 years, Dallas/Fort Worth's retail occupancy has climbed above 90%, with 21 of 38 submarkets in the 153-million-sf inventory registering above the benchmark. Even sweeter is the news that class A sales reeled in $1.3 billion.

"Our market is enjoying its best performance in awhile and we're keeping our fingers crossed it will stay that way," Herbert D. Weitzman, chairman and CEO of the locally based Weitzman Group and Cencor Realty Services, told a standing room only crowd of more than 300 professionals at the 16th annual shopping center survey and forecast breakfast held yesterday at a Dallas restaurant. And, all the signs are in place for another good year, he said.

The Greater Dallas area is 91% leased and the Fort Worth metro is 89.3% filled, setting up a region-wide occupancy of 90.5%. In 2003, the overall rate was 89.7%. But when it comes to submarkets, Fort Worth's CBD, specifically Sundance Square reigns supreme with a 100% occupancy. Also in Top Five are Frisco and McKinney, tied at 98.3%; Cedar Hill, 98.2%; Rockwall, 97%; and Park Cities/Oak Lawn, 96%.

The region ended 2004 with 4.8 million sf of absorption, up 2.1 million from 2003. On the construction side of the equation, 4.4 million sf came on line or one million sf more than the previous year. In a breakdown of the sister cities, Dallas racked up three million sf of new space and absorbed 3.8 million sf while Fort Worth added 1.4 million sf and absorbed 900,000 sf. "It's the third highest absorption in 15 years," Weitzman said, pointing out that the stride was made without the addition of a new mall. Plus, it's coming from a region with 27 sf per capita or nine sf more than the national average.

The Fort Worth metro is destined to gain more ground this year as retail space starts to deliver in the Alliance Corridor. The 2004 construction leaders were Lewisville and Flower Mound, 744,000 sf; McKinney, 454,000 sf; Arlington, 449,000 sf; and Northwest Fort Worth, 383,000 sf.

In terms of product type, mixed-use venues led the pack with a 97% occupancy whereas power centers are trailing by four percentage points. Malls posted a 91% occupancy; community centers, 90%; and neighborhood centers, 89%.

Rents are holding steady with the best-located, class A centers starting to make some gains. Rates for new in-line space range from $18 per sf to $22 per sf. Regional malls are getting $27 per sf to $32 per sf while the other end of the spectrum--vintage, unanchored neighborhood centers--are in the $3-per-sf to $5-per-sf range. The survey shows only 47 million sf of the region's 2,500 centers with 25,000 sf or more are 15 years old. "That's why our market is so healthy," Weitzman emphasized.

On the sales front, newer space and high occupancies proved profitable with every class A center on the market getting 20 to 25 offers and selling at 6.65% to 8.5% cap rates. About $1.3 billion of mostly grocery-anchored power centers sold last year in Dallas/Fort Worth, according Weitzman's research team. "That was a banner year," Weitzman said. "Investment in the retail market should stay healthy as we see it."

Aside from the up-to-date statistics, Weitzman told the crowd that last year "we learned there are chinks in the Wal-Mart armor" although it's "still the one to beat." Target Corp. is one of the strongest competitors for the Bentonville, AR-based retail giant, but JCPenney and Sears are gaining ground as they push out freestanding stores in centers rather than stay quartered in malls.

With 45 Supercenters in North Texas, Wal-Mart is "king of the hill in groceries and a wild card we have to watch closely," Weitzman stressed. Five years ago, Wal-Mart had 5% of the region's market share for groceries. Today, it has 23% of Dallas' market share and 27% of Fort Worth's, according to his research team.

"Retail competition is getting more cutthroat than ever," Weitzman said. "The retail market is dynamic and always changing."

Many changes target aging Baby Boomers, who control 70% of the nation's wealth. Within five years, one-third of the population will be 50 years or older. As a result, retailers like the UK-based Virgin Cos. and Atlanta-headquartered Home Depot Inc. are plotting concepts for the 50-plus crowd. Meanwhile, the state is ranked second in franchises, with flags flying for a plethora of retail products or services, many of which appeal to older and wealthier consumers.

Backing the solid gains in the retail sector are record-setting housing starts. The leader no longer is entry-level housing, but rather homes in the $151,000 to $200,000 bracket, according to Residential Strategies Inc.

Thirteen submarkets are producing 1,000 new starts annually. Greater Dallas' leading markets are McKinney, Frisco, the US Highway 80 Corridor, Grand Prairie US 380 Corridor, Southwest Dallas, Wylie and Allen. Across the metroplex, northwest, northeast and southwest Fort Worth are beehives of activity with Mansfield and Crowley/Burleson running relatively close behind. "And with the development will come opportunities for new retail development," Ted Wilson, principal of Residential Strategies Inc. in Dallas, told the audience.