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Dallas-Fort Worth retail market surviving the retail apocalypse
Real Estate - SEPTEMBER 5, 2019

Dallas-Fort Worth retail market surviving the retail apocalypse

by Andrea Zander

The Dallas-Fort Worth (DFW) economy is booming with tremendous population, income and job growth that directly benefit the local retail sector.

More people have moved to DFW last year than any other metro area in the nation (246 people arriving daily), according to data from the U.S. Census Bureau. Job creation added 116,400 jobs last year and the unemployment rate has recently dropped to 3 percent, which is the lowest rate in 20 years.

Despite the increased tenant bankruptcies and box vacancies in the country, DFW has shown immunity to retail disruption as investors continue to underwrite and price in the mitigated risks associated with a very strong local economy. Retail investors see DFW as a solid target to deploy capital. Based on National Council of Real Estate Investment Fiduciaries, the market is reporting 7.7 percent total return through mid-2019, more than double the national average of 3.2 percent.

And PricewaterhouseCoopers and the Urban Land Institute named DFW as the No. 1 market in their prestigious annual forecast report titled Top 10 Markets in Emerging Trends in Real Estate in 2019. The DFW retail market has an inventory of approximately 200 million square feet of space in projects with 25,000 square feet or more, the largest retail inventory for any metropolitan area in Texas, according to Weitzman’s midyear report.

The retail market has a stability and healthy occupancy improvements. It is forecasted the market this year will be Dallas-Fort Worth’s sixth consecutive year of occupancy above 90 percent. Overall retail occupancy in DFW in the second quarter of 2019 reached a record-high of 94.7 percent, with over 2.6 million square feet of retail space under construction and more than 893,000 square feet of space absorbed, according to Real Capital Analytics. DFW led the nation with 3.8 million square feet of net absorption of retail space during the last 12 months. During this same time period, approximately 3.1 million square feet of space was developed, which is almost 25 percent lower than the amount of retail space constructed in the previous year. Retail rents in the Dallas metro area this year are expected to increase 4.8 percent on a year-over-year basis to $17.74 per square foot and eclipse the previous five-year average growth rate of 4.3 percent. Strong absorption and high occupancies, coupled with reduced deliveries of new retail space and increasing rents, provide a perfect storm for continued retail investor appetite in the DFW market.

Between the second quarters of 2018 and 2019, retail transaction activity has totaled $3.17 billion, indicating continued momentum in investment sales volumes in the Dallas metro area.

The area slipped to sixth place among the country’s biggest metro areas for commercial building, according to Dodge Data & Analytics.  Developers are expected to add only about 1.7 million square feet of DFW retail space this year — the lowest construction total for the area since 2013.

In a low construction market, developers turn to redevelopments to create modern shopping environments that will attract expanding tenants. Retailers have recycled many of the vacant former Toys R Us locations in DFW, according to Weitzman. For example, Dick’s Sporting Goods relocated to a former Toys R Us property, with plans to remodel the approximately 72,500-square-foot space.

By keeping new development on pace with demand, the market has avoided overbuilding and continues to thrive.

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