The Dallas-Fort Worth retail market last year experienced the highest occupancy rate since 1981, all amid growing concerns on the future of in-store retailing.
DFW market’s 93% occupancy in 2019 means it has now reported occupancy above 90% every year since 2013.
The seven-year run is the longest-running occupancy streak in its recorded history, according to real estate company Weitzman, which released the data Jan. 7 at the Weitzman Annual Forecast held at the George W. Bush Presidential Center in Dallas.
A subsiding construction rate in retail acreage and the changing dynamics inside and outside shopping centers points towards a continuation of the occupancy streak in 2020.
A total of 1.8 million square feet of new or expanded retail centers were constructed in DFW in 2019. About 48% more retail centers were constructed in 2018.
“But the construction slowdown also reflects the market’s success at re-shaping and re-purposing existing retail,” said Robert Young, executive managing director for Weitzman. “Construction is more than bricks and sticks. It’s a tracking metric for how our market is performing. And during the past decade, we’ve seen our market self-regulate.”
From 2000 to 2009, D-FW added a total of 47 million square feet of new retail space. The market then added less than half – 22.6 million square feet of retail space – in the decade that followed.
The average size for a new retail center in 2019 was 64,000 square feet, a sharp decrease from the average of 124,300 square feet a decade ago.
Retailing has evolved. And retailers are attempting to follow where the money goes.
The growing popularity of online shopping significantly disrupted big-box retailers and department stores.
One of the main casualties of the digital age has been shopping malls, which once flaunted its connection with mass merchants and fashion apparel stores.
Last August, Sears announced the closing of its store at North East Mall in Hurst, amongst a long list of store closures across the country. Many retail real estates are still recovering from the pullout of Toys “R” Us and Babies “R” Us.
The impact of these shifting market dynamics is being felt locally at Fort Worth-based Pier 1 Imports, where on Jan. 6, the home decor retailer announced it was closing up to 450 stores, about half its locations.
However, new retailers are coming in to fill in the vacant spaces.
The mall category saw an increase in occupancy in 2019, according to the Weitzman report.
“This past year proved that malls are good real estate – just not necessarily good retail real estate,” Young said.
Unconventional mall concepts, like fitness, medical or grocery, backfilled vacated department stores in 2019, according to Weitzman.
As an example, gym concept Athletic Apex moved into the 60,000 square feet of space at Fort Worth’s Ridgmar Mall last year after Neiman Marcus closed down its store.
And smaller neighborhood centers or strip malls, community centers, power centers and mixed-use projects continued to grow in 2019, as a result of DFW’s remarkable population growth and rising income.
This new residential growth drives retail demand, and owners of existing centers took on renovation projects.
Weitzman, for example, is renovating 14 centers with a program that it calls “life-styling the strip center,” Young said. A renovation project at The Fielder Plaza in Arlington was completed last fall.
The idea is to make the strip malls as pedestrian-friendly as possible by adding green space, patios, seating areas and arbors, among other things.
Restaurants, by far, attracted the most customers to the retailing spaces. Restaurants drove traffic to-and-fro groceries or other retailers in the same shopping centers, Young said.
Large community centers, at present, have as many as 10 restaurants on its premises. A decade ago, there would be two restaurants at best, according to the report.
Repurposing works and redevelopments being done at older retail centers and entry of newer tenants, coupled with a “low-construction environment means that a lot of retail demand is driven to existing retail centers,” Young said. “That’s a big reason why net leasing absorbed more than 1.8 million square feet last year.”
Weitzman surveyed 42 DFW submarkets, constituting 200.5 million square feet of retail space and 1,427 shopping centers in preparing the annual report.
Young highlighted five key trends and expectations in retail real estate to watch out for in 2020:
Retail occupancy reaches 95%
Several large projects are underway and are expected to come online in 2020. New projects, like the 35-acres Shops at Chisholm Trail Ranch, will ensure a strong occupancy rate. “The disruption of retail is basically over, and now our retailers have transitioned to what we call ‘Customer. Convenience. Convergence,’ Young said.
Construction remains low
Approximately 1.9 million square feet of retail construction will be completed in 2020, according to Weitzman. The decrease in construction will help avoid overbuilding. “With today’s land and construction costs, rents would have to be way above market to justify new space,” Young said.
Retail vacancy creates opportunities
With new projects hard to come by due to low construction, vacant spaces would be seen as an opportunity in a time of such high occupancy. “Today, if a store fails, it means the customer has rejected the concept,” Young said. “But vacancy in a well-located center gives the landlord the opportunity to re-merchandise and re-energize the center.”
Investment market bifurcates more
The increasing demand will raise the value of retail stores. Even if stores underperform, the property asset value may continue to rise. It is likely to impact both smaller shops and fully leased power centers. “There’s a fear in the investment market that, if a box tenant goes vacant, it can be difficult & costly to re-lease at market rents,” Young said.
Digital marketing dictates retailers’ outcome
Brick-and-mortar retailers will need to have a strong online presence to gain customers. More and more buyers tend to search online for the products before they go into stores. The development of mobile shopping has only added to the ease of online retailing. “The customer today literally has retail’s future in their hands,” Young said.