Is the current state of DFW retail real estate sustainable? Herb Weitzman weighs in.

Retail real estate is enjoying its best decade (in terms of balanced supply and demand) that I can remember during my long tenure in the industry. Every year this decade since occupancy finally hit the all-important 90 percent mark in 2014, there has been steady growth in leasing, finally bringing us to 2024, when DFW reports the tightest retail market in its history.

One question I get asked is, “Is this situation sustainable?” The answer is clearly yes, as I will explain.

The question of sustainability is often asked by seasoned professionals who remember previous growth cycles, which were usually followed by market declines and even crashes.

In retail, the 1980s will be remembered as the “go, go” decade, which included some of DFW’s busiest construction years, dominated by speculative activity that, along with the savings and loan crisis, led to worse real conditions by the end of the decade. real estate crash after the Great Depression.

The 1990s were the era of power centers—major centers with lines of killer concepts like Bed Bath & Beyond, Incredible Universe, CompUSA, Virgin Megastores, and Best Buy. These stores, which were superior to department store department stores, often had three brands competing in the same category, sometimes even at the same regional crossroads.

These category killers have led to department store weaknesses and even failures. Intensive construction completions in each category have led to the complete closure of some chains and contributed to the demise of weaker traditional indoor malls. During the 1990s, occupancy never rose above 89 percent, with the lowest point being 83 percent.

In the 2000s, energy retailers themselves began to struggle, unable to compete with the “endless aisles” of Amazon and its ilk. The 2008 financial crisis led to the bankruptcy of once-successful power center retailers such as Linens ‘N Things, book and music retailer Borders Group, Pier 1, Circuit City and others.

As a result of these decades of ups and downs, the market has learned several important lessons, primarily focusing on areas with strong fundamentals and creating new spaces in response to demand.

Matching new construction to demand will pay off, as the market reached 90 percent occupancy in 2014, with each year since reporting both healthy occupancy and new retail supply matching pre-leasing and user demand. The market is now at a record occupancy rate of 95.2 percent. However, new construction added only about 1 million square feet last year—a rounding error on 200 million square feet.

Construction will increase by about 1.9 million square feet this year, another conservative figure for a market experiencing record occupancy in what may be the strongest urban economy in the country. Much of this new space, supported by incredible residential growth, came from the expansion of new grocery stores.

Considering our current market, these factors will help keep it strong.

• Retail construction remains conservative, and what is being built is increasing occupancy in core stores and pre-leased retail space. We are in the midst of a ten year streak of good news and new supplies are still under control.

• Much of the new space is being created by new large format anchor stores for H-E-B, Tom Thumb, Kroger, Walmart, Costco and the like.

• Physical retail is more important than ever. Even in the midst of a pandemic, traditional operations have seen success thanks to the industry’s ability to transform through “technology and mortar.” Technology and bricks and mortar are what we call “infusing” physical retail properties with digital reach that meets consumer preferences for convenience, choice and experience.

• Additionally, the halo effect means that brick-and-mortar stores not only create places to shop, but also increase brand awareness and trust. Thus, the store itself plays a critical role in driving sales both in-store and online.

• Last but not least, we are in a market that is an economic powerhouse.

If you want to know why grocery stores dominate new developments, consider that DFW dominates lists of the nation’s fastest-growing cities. Our region has two of the fastest-growing large cities with populations over 50,000: Frisco and McKinney. Among the fastest growing cities with at least 20,000 people, North Texas also dominates the list with five spots: Celina with 26.6 percent annual population growth, Princeton with 22.3 percent annual growth, Anna with 16.9 percent, Prosper with 10.5 percent and Forney. from 10.4 percent. The growth is driven primarily by people moving here as more businesses move to DFW.

And this growth is widespread, not just limited to the suburbs. According to the most recent census report, Fort Worth had a population of more than 21,000, the second largest in the country after San Antonio. Denton added more than 7,900 people, the 13th largest in the country, and Dallas – a largely built-up city – added approximately 5,510 people.

We’ve all heard that retail follows rooftops, and the health of the retail market is due in part to four North Texas counties ranking among the top 15 in overall housing unit growth. The Census Bureau reports Collin County added 18,000 new housing units to become the fifth most active domestic market in the United States. The list includes Tarrant County with 17,194 new homes, Denton County with 14,296 and Dallas County with 13,644.

Prospects for continued growth are encouraging as DFW continues to attract residents. More people mean more households, which means more retail demand. This is why I am confident that the current state of our retail market will be sustainable in the long term.