Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.
Issue link: https://texasrealestatebusiness.epubxp.com/i/591312
44 • November 2015 • Texas Real Estate Business www.REBusinessOnline.com fulfllment center in San Antonio's Far Northeast submarket. "Looking forward, we feel most new development will be user-driv- en or food-centered in the growing far west sector and far north-central submarkets," says Blake Bonner, vice president and director of broker- age for REOC San Antonio. "These submarkets appear to have the most steam, with vacancy rates at 10 per- cent or less." The largest project underway in the city is the redevelopment of the former Joske's Building at River- Center Mall downtown. The entire 510,810-square-foot space has been gutted and renovations are underway to make room for new retailers like H&M; and Dave & Buster's. REOC San Antonio is currently developing the Singing Hills devel- opment, a 250-acre mixed-use de- velopment that was named retail development of the year and overall development of the year by the San Antonio Business Journal. Along with more than 246,000 square feet of retail space, the development also includes a hotel site and multifamily residenc- es. The center is anchored by a Walmart, which opened in September. Recently announced retailers include Whata- burger, Popeyes, Burger King, Secu- rity Service Federal Credit Union and The First National Bank of Sonora. Construction on the retail space began in October. The city is also seeing its fair share of grocery-anchored development, with major brands looking to expand their presence in the city. "Both Walmart and HEB have been extremely active in not only develop- ing new locations, but also holding fu- ture development sites in inventory," says Bonner. Austin Retail Revival Austin has become one of the fast- est-growing metros in the nation, according to Marcus & Millichap's third-quarter retail research report. From 2010 to 2014, Austin was the fastest-growing city in the U.S. among those with a population larger than 500,000, growing by 15.5 percent from 790,390 in 2010 to 912,791 in 2014. This has boosted both retail demand and consumer spending. Development remains somewhat limited, however, with the 500,000 square feet of retail to be delivered this year increasing inventory by 0.6 percent. Employment payrolls are expected to grow 3.3 percent in 2015 with the creation of 30,500 jobs, ac- cording to Marcus & Millichap. The combination of modest new construction and high growth dropped Austin's retail vacancy to 4.6 percent in the third quarter, down 50 basis points from the second quar- ter, with a further drop expected by the end of the year. Average asking rents are expected to rise to $18.98 per square foot, an increase of 3.5 percent from last year, according to Marcus & Millichap. Ken Satterlee is the president and CEO of St. Croix Capital Advisors, an Austin-based commercial real estate frm. The company is handling the marketing and leasing of the Gate- way to Falconhead mixed-use devel- opment in the Austin suburb of Bee Cave. The 126,000-square-foot proj- ect will include 46,000 square feet of retail space when the frst phase is completed. Construction began in September and is expected to last 10 months. The second phase will consist of an 80,000-square-foot ofce condo development. Retailers on board so far include Pioneer Bank and South- Star Bank. A unique feature of the develop- ment's retail portion is that tenants can purchase retail space rather than rent if they choose. "It's not rare for a standalone fast food restaurant to own a property, but for a 2,000-square-foot tenant to be able to own its space is almost un- heard of," says Satterlee. Satterlee feels major retail growth is on the way for Austin. "Retail is always the frst sector to go into recession and the last to come out," he says. "It refects the ability of the customer base to spend money. We've been out of the recession for a few years, but retail has only taken of in Austin over the last year-and-a-half or so." Austin's north and west submarkets are performing best at the moment, with the Bee Cave development lo- cated west of the city. Other popular suburbs targeted by builders include Cedar Park, Pfugerville and Round Rock. "Within a fve-mile radius of our project in Bee Cave there are over 7,000 new single-family homes in the pipeline," says Satterlee. "Gateway to Falconhead is boutique retail with small-footprint buildings. We want to provide services the people around us need." A lack of new construction has also led to a surge of interest in value-add properties, with intense competition sometimes pushing cap rates below 7 percent, according to Marcus & Mil- lichap. Nebraska Lands in Dallas Retail occupancy in metro Dallas climbed by 150 basis points in the sec- ond quarter of 2015, the highest quar- ter-over-quarter increase in the last 10 years, according to CBRE. Across the Dallas/Fort Worth area, the vacancy rate now stands at 6.1 percent. The largest recent retail project to open in Dallas, and one of the largest in the nation, was the 560,000-square- foot Nebraska Furniture Mart which held its grand opening in May in the North Central submarket. The store contributed 96.5 percent of the total 580,000 square feet of new retail com- pletions in the second quarter, accord- ing to CBRE. Most of the available grocery, ft- ness, sporting goods and discount soft goods space was absorbed during the frst half of 2015. Steve Williamson, managing director of retail for Tran- swestern, says there is defnitely no risk of overbuilding retail in Dallas. "Retail typically follows housing and jobs, and it has been a little slower to catch up with the job growth and housing growth that we've had," says Williamson. "Capital markets have been fairly constrained on new devel- opment. They want you to have pre- leasing, which has kept development in check." Williamson adds that the amount of new construction is minimal com- pared with 2005 or 2006, when up- wards of 5 million square feet of retail space was under construction at once. Today the number is closer to 2 mil- lion, he says. Transwestern is leading a new de- velopment that will be built in south Fort Worth at the corner of Sycamore School Road and State Highway 121, which is a new road. The 26.8-acre development is known as Summer Creek Crossing and in the future will include the southernmost retail sta- tion on the Southwest-to-Northeast line for the Fort Worth "T" transit system. Transwestern is also involved in several projects in northwest Fort Worth. The vacancy rate in some of the hot- test submarkets is as low as 2 or 3 per- cent. Williamson says a combination of high land values and rental rates have led to a landlord's market. "I've been working in retail in Dal- las for a good 40 years and I can tell you it's as tight of a market as I've ever seen," says Williamson. According to the U.S. Bureau of Labor Statistics, employment in the Metroplex grew by nearly 112,200 jobs during the second quarter, while the unemployment rate fell by 60 ba- sis points to 4 percent. Metro Dallas residents have an average per capita income of $50,076, a year-over-year increase of 5.7 percent, according to Moody's Analytics. Income is expect- ed to increase an additional 6.1 per- cent in the next 12 months. Grand Parkway Hits Houston Lilly Golden, founder of Houston- based Evergreen Commercial Realty, says Houston's low cost of living means its expanding base of residents tends to have a lot of disposable in- come. Golden's company is the leasing agent for Katy Ranch Crossing, a re- tail development in the fast-growing western suburb of Katy. The develop- ment, anchored by Main Event En- tertainment, features 750,000 square feet of retail space located directly be- tween a Walmart and a Costco. Katy Ranch Crossing also includes 4,000 feet of linear freeway frontage and 129 acres of retail, apartments, medical and ofce space. The average household income within a fve-mile radius is estimated at $108,271. "We have been successful in Katy because we were one of the frst com- panies to start building there toward the end of the recession," says Golden. "We saw that Katy was a good market and went forward with the develop- ment. We were there with a product on the ground when retailers started expanding again." Much of Houston's growth has been along the Grand Parkway, a new ex- terior loop highway currently under construction. Retail has been expand- ing in afected suburbs including Rosenberg, Sugarland, Kingwood and Baytown. During the second quar- ter, tenants absorbed 933,719 square feet of retail space in metro Houston, according to Colliers International, slightly more than the 837,255 square feet recorded in the frst quarter. Although retail leasing activity reached 1 million square feet in the second quarter, that fgure marked a 30 percent decrease from the frst quarter. The decline was the result of a lack of available space, say indus- try experts. The retail vacancy rate in metro Houston is 5.8 percent. For single-tenant retail, the vacancy rate is only 1.9 percent. According to Colliers, the amount of retail under construction across the Houston area jumped from 611,649 square feet in the second quarter of 2014 to 1.97 million square feet in the second quarter of 2015. Major projects include an expansion of the Baybrook Mall and the new River Oaks District opening in the Galleria area. Several power centers are also under construc- tion in the Houston area.Retail devel- opers delivered more than 1.1 million square feet of new inventory during the second quarter, 87.1 percent of which was pre-leased. Houston's re- tail pipeline totals 1.9 million square feet and is 78 percent pre-leased, ac- cording to Colliers. Golden doesn't see low oil prices, which could lead to a downturn in the oil and gas industry that impacts job growth in Houston, greatly afect- ing the city's retail market as long as population continues to expand. "Retailers are less concerned about oil prices because retail follows resi- dential," says Golden. "As long as residential growth continues, the re- tailers will follow." n TEXAS RETAIL EXPANSION REMAINS HEALTHY RETAIL from page 1