Texas’ major metros—Austin, Dallas-Fort Worth, Houston, and San Antonio—each have different histories, cultures, and leading industries. But when it comes to the health of their retail markets, they are all on the same page.
Not until mid-year 2013 did all four markets report occupancy rates above the all-important level of 90 percent. In the years since, they’ve continued to improve, for three major reasons. One, job and population growth remains strong. Two, construction remains in line with demand, helping to avoid overbuilding. Three, expanding retailers, in particular grocers, absorbed most of the remaining big-box spaces vacated when the 2008 recession dealt a fatal blow to several leading power retailers.
Let’s now look at the four markets as of late summer 2015, and three key takeaways:
1. The markets are currently as strong as they have ever been. Austin and Houston are reporting the tightest markets in Texas, both with 96 percent occupancy. (Austin’s rate is based on an inventory of 46.3 million square feet. Houston’s inventory, of course, is much larger; it’s more than three times as large with 152 million square feet.)
San Antonio and Dallas-Fort Worth are not far behind with, respectively, 93.5 percent and 92.0 percent. To put those occupancy rates in perspective, D-FW is enjoying its lowest vacancy rate in 15 years, at only 8 percent. And it was only four years ago that D-FW reported a 13 percent vacancy rate. On an inventory of 190 million square feet, 13 percent means a lot of vacant space!
2. All of the markets are seeing one trend in construction: limited to the existing level of demand, with extremely limited speculative small-shop space.
Austin is the most limited, with only about 1 million square feet coming online this year. The market is seeing a few grocery stores, mainly Walmart and H-E-B, plus a handful of other anchors like Bass Pro Shops and LA Fitness. Because the market for small-shop space is so constrained, literally dozens of small 10,000- to 15,000-square-foot strips are being built in tight submarkets.
In Dallas-Fort Worth, new space for 2015 will top 3.8 million square feet, nearly double what the market saw in 2014. Still, most of the new space opens completely occupied by anchors like grocers. Limited small-shop construction is keeping retail rental rates firm and growing.
Houston also is seeing construction jump, by nearly 1 million square feet, to 2.6 million square feet on track for 2015. That total, though, is still extremely constrained for a market that is one of the largest in the country. The Houston metro area is seeing construction dominated by grocery stores, led by Kroger, along with several major mixed-use projects and, in contrast to the other three markets, new mall space. This comes from expansions at Houston Galleria and Baybrook Mall, which together represent nearly 700,000 square feet of new space.
In San Antonio, the market is under way with approximately 1.3 million square feet of new space this year, down slightly from last year’s total. Walmart dominates the new space with five new Supercenter and Neighborhood Market locations.
3. As good as 2015 looks, 2016 might be even better. Retail construction has remained in pace with demand, so the market shows no risk of overbuilding. The retailers expanding in the four major Texas markets are dominated by the categories of food, entertainment, fitness, and, to a lesser extent, medical. All of these categories are Internet-resistant.
That spells good news for the long term for our four very different markets that share one thing: a healthy outlook.
Ian Pierce is director of corporate communications for Weitzman/Cencor. Contact him at [email protected].
