Real Estate Forecast: Specialty grocers leading way in new developments





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A. Lee Graham

Supermarkets are blazing a trail for massive retail and mixed-use development in Fort Worth as apartment construction surges and a strengthening economy continues to feed more growth, according to the latest real estate forecast. “By all accounts, from an economic standpoint, 2014 appears to be heading in the right direction,” said David Berzina, executive vice president of economic development with the Fort Worth Chamber of Commerce. Speaking Jan. 16 at the 25th annual Tarrant County Commercial Real Estate Forecast at the Fort Worth Convention Center, Berzina joined area developers and real estate executives in gazing into a collective crystal ball. They found reasons for hope.

“We are starting to see an upward trend,” said Ben Loughry, executive director with Integra Realty Resources DFW LLP, referring to a real estate environment that the longtime real estate executive called strong and getting stronger. As the nation’s 15th most populated county, Tarrant County has the 14th largest labor force of those 3,221 counties, according to Berzina. Fort Worth grew 38 percent between 2000 and 2010, or 3.9 percent a year, accelerating demands among new residents. “We’ll see more retail, housing and school demands in that time,” Berzina said. In the past year alone, Fort Worth celebrated several corporate victories as Google, and Wal-Mart, among others, chose the city for new facilities. Not to be outdone, leasing accelerated at both existing and planned mixed-use developments from West Seventh Street to the Clearfork mixed-use development between Hulen Street and Bryant Irvin Road in southwest Fort Worth. “Opportunities like this don’t come along very often,” said Whit Kelly, senior vice president at Jones Lang LaSalle, in a news release. The firm is overseeing commercial leasing for the Clearfork development’s newly announced first commercial building. The 100,000-square-foot office structure is planned for part of the 475,000-square-foot development’s first phase, also planned to feature 392 town homes, urban efficiencies and contemporary lofts located directly above shops and restaurants. Construction on the office building is set to begin this summer and reach completion in fall 2015.

Retail With big-box growth slowing, supermarkets – particularly specialty grocers – appear to be leading the charge in the area, according to Stephen Coslik, chairman of The Woodmont Co. Leading the way has been Albertsons LLC’s acquisition of The United Family, formerly United Supermarkets LLC. “The grocery industry is undergoing tremendous, tremendous change,” said Coslik. Locally, United’s presence is represented by Market Street. Not only did 2013 see Albertsons’ $385 million purchase of United, it also saw the firm shed nine of its local stores to Wal-Mart for neighborhood market conversion. According to Coslik, the specialty grocers making the strongest push in the Dallas-Fort Worth are: Sprouts, currently with 14 stores and five stores planned for each 2014 and 2015; Fresh Market with six stores immediately planned and at least 12 stores on the horizon; and Natural Grocery, now shopping for 12 sites. All of this expansion is in addition to plans by predominant market leader, Whole Foods Market. “Additionally, many in the industry are speculating on H-E-B’s construction plans in the Dallas-Fort Worth area, given that they now own 12 land parcels and are closing on one property per month,” Coslik said. Meanwhile, online commerce appears cutting into bricks-and-mortar business as Staples, SuperTarget, Wal-Mart and other stores reduce their area store sizes, leaving landlords scrambling to fill backspaces. Private developers eyeing new projects this year face notable challenges; namely, banks seeking equity requirements up to 40 percent of cost plus full repayment guarantees, construction costs surging 30 percent higher, and construction costs rising 10 percent each year. Still, several Tarrant County retail centers are planned for expansion in 2014-2015. And several of those anticipate a new specialty grocery store, including the Westbend development along University Drive in Fort Worth and Southlake Town Square in Southlake.

Office Fort Worth’s office market proved a mixed bag in 2013, with areas west of downtown surpassing all expectations with declining vacancy while the Central Business District battled some challenges; namely, negative absorption, according to David Walters, executive vice president of Jones Lang LaSalle’s Fort Worth office. “Much of the CBD’s ‘softening’ can be placed on existing tenants (i.e.: Cook Children’s Hospital) relocating to owned facilities,” said Walters. After a year that saw leasing velocity slow compared to previous years, limited activity by office investors and the Central Business District competing for larger transactions as more supply options appeared, little changed from 2012. “We should continue to be thankful to be in Texas,” Walters said. “I see no reason not to believe that 2014 will be a great year for the Tarrant County office market.”

Single family Jim Harris, a founding partner with James R. Harris Partners, remembered a time when developers built homes for 76 million baby boomers. Though many members of the younger Generation Y enjoy living in higher density urban environments, Harris said many eventually will seek larger quarters. “Today, we have an equal number of people to build for Generation Y,” Harris said of the 76 million members. He described the 1989 real estate slump as much worse than market conditions of the past few years. Moreover, he described current bank financing as plentiful compared to 1989 when real estate values dropped 50 percent to as low as 90 percent. Statistics give reason for optimism, said Harris, pointing to 9,000 total housing starts in 1989 compared with 21,000 in 2013.

Multifamily When it comes to apartments, job creation will be critical in renting growing numbers of new units, according to Drew Kile, director of Institutional Property Advisors at Marcus & Millichap Real Estate Investment Services. “While this might cause alarm for investors, the fact that 112,700 jobs were created in D-FW last year more than offset the new supply with approximately nine jobs created for each unit delivered,” Kile said. A strong area job market helped pushed year-end apartment occupancy to levels not seen in more than a decade. In 2014 alone, between 16,000 and 19,000 new units are expected to reach completion. Kile described 2014 as a transitional year for the apartment sector, with new units creating the potential for some near-term softness. Meanwhile, employment growth appears strong. “The stars continue to align for the future of the multifamily sector in the area, but overbuilding can dim those stars if the pipeline grows too rapidly,” Kile said.

Industrial With absorption up 40 percent across Dallas-Fort Worth, industrial development remained strong in 2013, according to Bill Burton, senior vice president of Hillwood Properties, developer of AllianceTexas. “2013 was, by all accounts, a good year,” Burton said.