Texas retail market strength
market insight

Texas retail market strength

If you want to understand the state of Texas’ retail market, just look at the numbers.

In terms of jobs, Texas is on track to add 191,000 net new jobs this year, according to the Federal Reserve Bank of Dallas. Much of that growth will be in our major metro markets of Austin, Dallas-Fort Worth, Houston and San Antonio.

In Austin, for example, unemployment is currently an extremely low 3.0 percent (as of February 2019). D-FW’s rate is a healthy 3.6 percent, Houston’s is 4.2 percent, and San Antonio’s is 3.4 percent. All of these rates are considered strong.

Population growth is a big driver of retail demand, and in terms of population growth, all of our major Texas metros are national leaders.

The country has only 11 cities with 1 million people or more within city limits. Three of those – Dallas, Houston and San Antonio – are in Texas. And by 2020, Austin is on track to be the fourth.

This healthy job and population growth are big drivers for our retail markets. Plus, near-record-low development at a time of steady demand is driving expanding concepts to lease in existing retail projects.

As a result, all four of our major metros are posting record or near-record high occupancy, despite overblown talk of ‘Retail Armageddon”.

Texas’ Four Major Metros All Report Strong Retail Growth

All four of Texas’ major-metro retail markets enjoy strong performance in terms of great occupancy numbers and healthy retail demand.

The markets all also report new construction that is at or near record lows. The lack of new supply at a time of healthy demand, combined with the increasing densities and incomes of established submarkets, is leading to a new round of investment in existing centers.

Developers are renovating older centers in submarkets experiencing increasing densities and incomes. The renovations reconfigure yesterday’s tired retail projects to create spaces that work for today’s concepts.

In the process, expanding small concepts get the modern spaces they need to bring much-needed shops and services to growing populations.

Austin: Strongest Market in Texas

The Austin area currently reports 95.8 % occupancy, making it the strongest market in Texas in terms of occupancy. The occupancy rate is based on a retail market inventory of 49.5 million square feet in projects with 25,000 square feet or more.

During the past year, Austin added only 670,000 square feet of space in only a handful of new projects with anchors that included Costco and Randalls grocery store. The majority of anchor activity, in fact, was in existing retail, with space being backfilled by concepts like Old Navy, AMC, Marshalls, Petco, H Mart, 99 Ranch Market and others.

We are seeing more construction activity for 2019, with new projects anchored by the likes of Whole Foods, H-E-B and LA Fitness and major mixed-use projects with significant specialty retail components. 

Dallas-Fort Worth: Retail Real Estate Stability

D-FW is currently enjoying one of its longest periods of retail estate stability, with several consecutive years of occupancy that exceed the market’s previous high point of 92 % in 1984.

Even closings from failed or struggling legacy retailers like Toys “R” Us and Sears have had little impact on the overall occupancy, which total is 92.5 percent.

During the past year, D-FW only added 3.5 million square feet of new space, barely a rounding error on a market that has an inventory of approximately 200 million square feet. New anchors including grocery stores like Walmart and Kroger, power retailers like T.J.Maxx, Petco and At Home, and entertainment concepts including Alamo Drafthouse and AMC.

As a result of conservative construction and healthy leasing, every center category except malls (87.5 percent) is enjoying strong occupancy rates.

In fact, the neighborhood category is posting occupancy of 90.1 percent, the first time its occupancy has reached 90 percent or more since Weitzman first started its market survey three decades ago.

Houston: Grocers Drive New Construction

Houston is at a healthy 94.0 % retail occupancy on a retail inventory of 160.5 million square feet.

Construction during the past year added 2.6 million square feet, well below the totals recorded a decade ago, when new space added around 5 million square feet a year on average.

New construction was driven by leading grocer H-E-B, which added five locations for H-E-B and one for its Joe V’s Smart Shop value-oriented concept. Whole Foods and Kroger also added new stores, along with some power retailers and entertainment concepts like Alamo Drafthouse and music-focused The Rustic.

New construction in Houston in 2019 and for the past few years has largely located along the Grand Parkway, the name of a new highway that, upon completion, will cover 180 miles through some of the metro area’s fastest-growing suburbs.

The market is also seeing a number of urban retail redevelopments, particularly in Houston’s densifying areas like the Heights and Midtown.

San Antonio: High Occupancy, Low Construction

San Antonio’s retail occupancy rate is a 94 % for an inventory of 46.1 million square feet.

The market added only 275,000 square feet in 2018, with the construction dominated by entertainment anchors.

That 2018 total already has been exceeded with the addition of only one store, IKEA.

The furniture giant opened its first South Texas store in February 2019 at the intersection of IH-35 and Loop 1604 in Live Oak, a suburb of San Antonio. The IKEA is the first anchor for a 2020 regional retail project, Live Oak Town Center, which will be built in phases and total more than 800,000 square feet upon completion.