Texas Real Estate Business

OCT 2017

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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50 • October 2017 • Texas Real Estate Business www.REBusinessOnline.com DALLAS FACES SHORTAGE OF PREMIUM RETAIL SPACE RETAIL from page 1 there simply may not be enough space to go around. CoStar tracks about eight submarkets predominantly located inside the loop: The CBD, Lakewood, Lovefield/West Dallas, North Dallas, Northeast Dal- las, Northwest Dallas, Southeast Dallas and Southwest Dallas. As of the second quarter of 2017, the average annual rent growth across these submarkets has been about 2.5 percent, while the average vacancy rate for these high-rent areas has been just a shade under 5 percent. In addition, there are only eight retail properties to- taling approximately 83,000 square feet under construction in these submarkets, suggesting rent growth won't be un- dercut by new supply. Tenants Tweak Strategies The effects of the intense competition for retail space within urban submar- kets is perhaps most visible in terms of leasing practices, like integrating stron- ger co-tenancy language into contracts. "Within the Dallas retail space, di- versification of income streams across tenant mixes is very important," says Phillip Bankhead, senior vice president of NorthMarq Capital's Dallas office. "Consequently, we're seeing more co- tenancy clauses that prohibit the leas- ing of more than X number of busi- nesses in the same industry within the same space." Bankhead adds that some retail ten- ants operating in core urban areas have undertaken aggressive practic- es, like making their own capital im- provements. Some landlords in Dallas are willing to shift the burden of this expense to tenants in exchange for re- duced rents, which can run as high as $50 to $55 per square foot in the hottest submarkets. Clint Lofman, se- nior executive vice president with the Dallas office of A10 Capital's echoes the importance of loca- tion in influencing trends. "Some landlords with properties in difficult locations don't want to have to require tenants to report sales," says Lofman. "That way, when they're look- ing for financing or a sale, they don't have to disclose marginal sales, which could cause concern." Retailers are also warming to the idea of opening more stores located within closer proximity to each other, accord- ing to Frank Bullock, executive vice president of retail for Henry S. Miller Brokerage Co. (HSM). "Retailers used to be able to draw a two- or three-mile ring around their store, and that was the core customer base," says Bullock. "With all the indig- enous growth of ex- isting retailers, as well as the influx of outside operators, that's changed. The more you shrink that circle, the closer your stores need to be to each other." End-cap locations within strip cen- ters make particularly attractive sites for retailers looking to execute this strategy, Bullock adds. "Where there used to be three or five users of end-caps in strip centers in core locations, there's now a dozen," he says. "There's just not enough qual- ity retail space on the market, so guys in the quality locations are getting the strongest rent appreciation." Discrepancies between levels of rent growths in urban versus non-urban areas are nothing new. But in Dallas, that spread is being amplified by the absence of developable land inside the loop, hence the heavy retail develop- ment in Plano, Frisco and McKinney. So while new projects in those areas are not expected to hurt rent growth inside the loop, the prevalence of them clearly points to a healthy balance between retail supply and demand. Investors Respond Heightened demand for quality space is equally evident on the invest- ment side of the market. Owners of Class A retail properties are the big winners. Conversely, small- er centers that are not located in prime markets are hurting, frequently trading at cap rates in the 8 percent range, ac- cording to Jason Vitorino, managing partner of Dallas-based investment brokerage firm STRIVE. "With this flight to quality locations, we've begun to see a difference of any- where from 50 to 100 basis points in cap rates for Class A versus Class B assets," he says. "Class A single-tenant proper- INSIGHT | KNOWLEDGE | EXPERTISE LANDLORD & TENANT REPRESENTATION • SITE ACQUISITION • SALES & LEASING REAL ESTATE CONSULTING • PROPERTY MANAGEMENT 281.367.2220 | www.jbeardcompany.com 10077 Grogan's Mill Road, Suite 135 | The Woodlands, TX 77380 THE WOODLANDS Mixed-Use Development – For Lease • 60,000 SF Retail & Professional Office • Restaurant & Retail Pad Sites Available • Adjacent to Super Target Anchored Power Center • NEC of heavily trafficked Research Forest Dr. & Egypt Ln. Research Forest Drive & Egypt Lane WOODLANDS SUBMARKET Pad Sites – For Sale/For Lease • Just West of I-45, near SH 242 • In Proximity of Grocery Anchored Shopping Center and New Retail Development • Potential uses: Retail, Office, Medical • Public Utilities Available; Off-site Detention 2615 FM 1488, Conroe THE WOODLANDS Retail Space For Lease • Adjacent to St. Luke's, Texas Children's Hospital & TW College Park HS, across from Lone Star College • Up to 8,742 SF available - Ideal Uses include Medical, Fitness, Entertainment • Located at the regional intersection of SH 242 & I-45 3091 College Park Drive WOODLANDS SUBMARKET Harmony Commons Retail For Lease • 20,000 +/- SF Retail Shopping Center -New Construction • Frontage on Grand Parkway 99 and Discovery Creek Blvd. • Adjacent to HEB Grocery Development and across from Walmart • Near Exxon/Mobil Campus Grand Pkwy @ Discovery Creek Blvd, Spring THE WOODLANDS Retail Space For Sublease – Reduced Rate • Ideal for Professional & Medical Uses • 2,430 SF at $19.25 NNN • ½ mile from I-45 & Memorial Hermann Hospital • Frontage on heavily trafficked lighted intersection 1508 Research Forest Drive WOODLANDS SUBMARKET 2nd gen Retail Space For Lease • Great visibility on FM 1488 near FM 2978 intersection • Near Super Target Power Center, Kroger Center & new HEB • 1,885 SF and 2,400 SF available • Northwest edge of The Woodlands and Woodforest, a 5,500 home master planned development are minutes away 6875 FM 1488, Magnolia THE WOODLANDS Retail Space For Lease • 1,500 SF In-Line & 1,944 SF End-Cap Restaurant Space Available • ½ mile from I-45 & Memorial Hermann Hospital • 60' Bay Depth, with Glass Storefronts • Covered Walk Along Full Length of Center 1500 Research Forest Drive WOODLANDS SUBMARKET Retail Space For Lease • 7,950 SF of End Cap Space Available in Early 2018 • Located between FM 2920 & Woodlands Parkway • 1.5 Miles South of The Woodlands Creekside Village 25201 Kuykendahl Road, Tomball ICSC Booth #1619 Frank Bullock Henry S. Miller Phillip Bankhead NorthMarq Capital Clint Lofman A10 Capital

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