Retail rally to continue for Fort Worth-Dallas, report says

A. Lee Graham

An already robust retail sector will retain its momentum as Dallas-Fort Worth continues outperforming most large metro markets nationwide, according to newly released market information. “Texas is an [income] tax-free state, and that’s important,” said Bill Rose, a vice president and national director of Marcus & Millichap Real Estate Investment Services’ national retail group.

In its third-quarter 2014 retail overview, the firm gave Fort Worth-Dallas high marks for employment, construction and rental rates. The area showed growth in all those categories, with retail vacancy expected to improve 40 basis points by year’s end, to 7.4 percent. “Jobs drive income, which drives consumption, which is very favorable for rents,” Rose said.

In the past year alone, the Dallas-Fort Worth population grew by 240,000 new residents, representing 100,000 new households. Corporate relocations have fueled much of that growth, Rose said. When Toyota chose Plano for its North American headquarters, bringing about 4,000 jobs to the area, or when State Farm, GE Financial, USAA, Motorola or other firms made similar announcements in recent months, they bring new residents to the area. Those individuals buy homes, patronize shops and restaurants and pay taxes. The local economy and strong household growth have spurred a surge in adding rooftops and retail projects planned for the region, the report said. It noted investor interest in existing Class B centers – or those with a diverse tenant mix and average rental rates – since rising land and construction costs are pushing up rents for newly built properties. “In retail, one of the really good things are regional malls,” Rose said. “Next is the open air-based retail center that can be considered Class A because you have your Whole Foods [Market], those sorts of stores,” Rose said.

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Leading job creation in the past year were what the report called “e-professional” and business services, with 39,800 new positions. Close behind was the e-trade, transportation and utilities sector with 30,100 jobs, including 7,000 retail positions. By year’s end, area employment is expected to rise 3.6 percent with 111,300 new jobs. Construction activity has surged in the past year as builders are expected to deliver 2.7 million square feet of retail space by year’s end in Dallas-Fort Worth. That’s down compared with 2.9 million in the previous year. Claiming a sizable share of the new construction have been big-box chains and supermarkets. “Shopping center construction remains well aligned with tenant demand, as the majority of the retail space underway has been pre-leased,” the report says. Planned retail projects have surged in response to surging residential development. Demand fueled growth in the past year as the multi-tenant sector saw 20 percent more transactions. At the same time, tightening vacancies and downward pressure on cap rates led more owners to sell.

Most of the market’s multi-tenant apartment listings received offers from prospective out-of-state buyers, but local private investors got more aggressive in their bidding, driving what the report called a 30-basis point reduction in cap rates. In terms of retail vacancy, Fort Worth surged ahead of Dallas, recording a 60-basis point improvement to 7.1 percent, while Dallas vacancies dropped 10 basis points to 8.1 percent. Discount chains represented many of the biggest leases signed in recent months. In the first six months of the year, Big Lots, 99 Cents Only, Dollar General and Tuesday Morning, among others, committed to space in the area. “It comes down to affordability,” Rose said, noting why many firms relocate to or add operations in Texas. “When companies consider markets, they look at the tax base.”