2006 Retail Forecast Shows Continued Growth for Sector

DALLAS-Putting the highly competitive world of retail under the magnifying glass, the Weitzman Group's founder and top executive predicts this year should bring positive growth overall for the sector.

"We're doing better than most of the other commercial segments, Herbert D. Weitzman, chairman and CEO of the locally based Weitzman Group and Cencor Realty Services, told the more than 300 professionals attending his 17th annual forecast at the traditional meeting spot, Nick & Sam's restaurant in Oak Lawn. Though retail remains everyone's darling, the 2005 numbers fell short of 2004's: occupancy dipped 0.6% in the 156-million-sf inventory; absorption was down by 2.3 million sf; construction backslid by 800,000 sf; and the average rent rang in at $13.32 per sf versus $14.18 a year ago.

Nonetheless, Dallas/Fort Worth has one of the largest retail markets in the nation, rising from fifth place to practically the top by adding 14 million sf in the past four years. "And, we know it's also the strongest," Weitzman says, citing supporting data from his annual survey of 1,200 shopping centers with 25,000 sf or more in the metroplex. "This is a good time to be talking about retail. It's the best part of the investment market today."

Of particular note last year was the opening of Ikea in Frisco and the continued success of lifestyle centers. Equally important is the quick backfilling of second-generation, big-box space.

One of the red flags on this year's horizon is Albertsons, with the decision still out if it's going to sell its under-performers and recapitalize since a takeover bid cratered. DFW used to be one of Albertsons' best markets, now it's one of its toughest due to the highly competitive terrain, Weitzman explains. What is certain is that any Albertsons real estate sales will open up the doors of opportunity for chains like Wal-Mart Stores Inc. to get a foothold in some infill markets that otherwise couldn't have been tapped, he adds.

The sector's most-telling barometer--single-family home starts--hit 47,324, up 8% from 2004. "New home development is real and sustainable by job growth rather than the artificial growth of the past four years from declining interest rates," Ted Wilson, partner in Dallas-based Residential Strategies Inc. He predicts starts will stick close to the 2005 number, with more entry-level housing coming this year due to the uptick in interest rates. At least 1,000 homes will rise in each of the DFW's 12 residential submarkets--keeping the axiom of retail following rooftops on solid footing.

"Marketwide, the occupancy looks healthy," Weitzman says. It did backslide to 89.9% from 90.5% a year ago, but that was due to store closings, he explains. Next month, another 900,000 sf will hit the market when Mervyn's closes 11 stores in the region. Dallas' centers are 90.5% occupied and Fort Worth's 88.7% filled.

By category, occupancy is 98% in mixed-use developments; 95% in power centers; 91% at malls; 90% in community centers; and 86% in neighborhood centers. Twenty-one of the 38 submarkets have occupancies exceeding 90%. The submarket leaders with less than 3% vacancy are Cedar Hills, Fort Worth CBD, Rockwall, Park Cities/Oak Lawn and Allen.

In the absorption category, power centers accounted for 1.2 million sf; malls, 1.1 million sf; and community centers, 845,000 sf. Neighborhood centers fell 800,000 sf into the red.

The construction sound byte is 3.6 million sf came on line, down 800,000 sf from 2004. Mall construction, thanks to Simon Property Group's open-air Firewheel Town Center, led the categories with 1.2 million sf delivering; community centers produced 1.1 million sf; power centers, 778,000 sf; and neighborhood centers, 173,000 sf. The construction hotspots are Garland, Frisco, Northwest Fort Worth, McKinney and North Dallas.