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Demographic Overview

Population: 5.2 million

Rate of Population Growth: 1.6%

Median Household Income: $66,500

Unemployment Rate: 6.5%

Retail Overview

2002 Retail Completions: 3.2 million sq. ft.

Retail Vacancy Level 2002: 11.5%

Retail Vacancy Level 2001: 11.2%

Average Rent Per Square Foot 2002: $14.50

Average Rent Per Square Foot 2001: $14.02

Source: CB Richard Ellis, U.S. Census Bureau, Marcus & Millichap, Bill Forrest

Despite a rise in vacancies over the past year, the Dallas Metroplex, as its boosters call the metropolitan Dallas-Fort Worth area, is not on the downswing.

“The Dallas market in general is strong and viable,” insists Bob Barnes, a partner in Reata Real Estate Services of San Antonio. “There are certainly areas that are stronger than others because of not being overbuilt or sustained residential growth, but that's always the case.”

The rise in vacancies, says Bill Forrest, a senior advisor in the Houston of½ce of Sperry Van Ness, stems primarily from Kmart closures and the retreat of supermarket chains such as Kroger, Winn-Dixie, Albertsons and Tom Thumb in the face of Wal-Mart's aggressive foray into grocery sales.

Even with the increase, Forrest says, the current vacancy level of 11.5 percent remains near its historic average. “Since 1976, the market has averaged about 90 percent occupancy,” he says. “Over the last eight years, it's been pretty consistent. It's never more than a couple points over or under the average.”

Though the historic average may seem slightly elevated by the standards of many regions, Dallas has maintained such a high rate of population growth that construction rarely slows down. CB Richard Ellis estimates that since 1990 the population, now 5.2 million, has grown at an annual rate of 2.75 percent, vs. a national annual average of 1.29 percent. Through 2006, the area is projected to have an annual growth rate of 1.62 percent.

The in¾ux creates continuous demand for new centers and retailers to ½ll them. The area's median income is $55,016, compared to $45,861 for Texas and $50,046 for the U.S., giving retailers even greater incentive for opening Dallas stores.

Forrest says he believes that renewed initiatives by Bed Bath & Beyond, Oshmann's, CVS Pharmacy, Walgreens, Wal-Mart/Sam's Club and other retailers should drive the vacancy level below 10 percent this year.

Rents, meanwhile, are stable, ranging from $10 to $22 per square foot in community centers, $10 to $20 per square foot in neighborhood centers and $7 to $16 per square foot in unanchored centers, according to Colliers International. Forrest estimates an overall market average of $14.47 per square foot, up from $14 in 2000.

Though Forrest says activity in former hot spots such as Plano, Mesquite and Flower Mound has slowed, Garland and Frisco are seeing signi½cant construction increases. Reata alone has three projects in Garland, he says.

One planned Garland project is the 16-acre Firewheel Plaza near Highways 190 and 78. It would place 140,000 square feet of retail on a site adjacent to Simon Property Group's proposed Firewheel Center, a 1.2 million-square-foot regional mall anchored by Dillard's and Foley. A Home Depot and a Lowe's opened nearby already.

Perhaps nothing re¾ects the market's strength more than the high level of investor interest. Forrest says he gets some 50 calls a day from people wanting to buy Texas shopping centers, especially in the $2 million to $10 million range. Though not all want Dallas, many do.

The result, he says, has been a temporary slowdown as sellers reconsider pricing. “All of a sudden we've got a glut of investors and sellers thinking maybe they're a bit too low. So now they've begun raising the prices, which should bring more product back to the market,” he says.

According to Forrest, local properties have been selling at cap rates of 9 percent and 10 percent, compared to 7 percent nationally. The most popular centers are those from 80,000 to 150,000 square feet. He anticipates investment activity will really start to pick up by summer, as investors recognize that the current boom in Houston sales is starting to price them out of that market.

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