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Don't mess with Texas

Development rides high in the Lone Star State thanks to record home sales, rapid income growth and low unemployment.

Texas just might go down in history as the home state of the 43th president of the United States. But regardless of the outcome of the November election, there's no denying that at the onset of the new millennium the Lone Star State is riding high.

With its lowest unemployment rate in 21 years, Texas in the past decade created more jobs than any other state. Its major metropolitan areas - Austin, Dallas/Fort Worth, Houston and San Antonio - all are posting record home sales and enjoying rapid income growth and an enviably high quality of life.

Texas' rock-solid economic status is attributable to several factors. The state's bread and butter during the boom years was the oil industry. But newcomers nowadays are just as likely to be lured by the plethora of jobs available in the telecommunications and health care fields, both of which are flourishing.

The state's geographic location in relation to the rest of the country is also working in its favor. "A lot of the corporate relocations have come about as a result of the fact that Texas is centrally located.

"That's important for travelers as well as for the employers that do a lot of shipping," explains Jean Smith, principal and executive vice president of United Commercial Realty, a Chain Links affiliate for Dallas/Fort Worth, Austin and San Antonio.

Austin With a thriving economy and more businesses than ever embracing the maxim that "it's best in the West," local, regional and national retailers are hustling to set up shop in Texas. Nowhere is that more evident than in Austin, which posted the highest retail occupancy rates of any major market in the state for the past decade. "And that trend is continuing," notes Tom Terkel, executive vice president of Cencor Realty Service in Austin.

The city leads Texas in job growth and is the seventh-fastest growing metropolitan area in the country. Census figures show that from 1990 to 1998 the five-county Austin area grew approximately 31%, from 846,227 people to 1.1 million people. Its housing market is stronger than ever, and an estimated 65,000 new jobs will be created within the Austin market this year - a healthy increase of more than 5%.

Capitalizing on all this activity, a number of retail projects are poised to come on line this year. For example, phase one of La Frontera, a 328-acre mixed-use project with 115 acres allocated for retail, recently opened in Austin. It will encompass 800,000 sq. ft. of retail and restaurants.

Other new developments in Austin include a central city project at 6th and Lamar that will open by year's end; a development of warehouse, office and retail space at Ben White near Lamar; a 116,000 sq. ft. shopping center anchored by H-E-B at East Parmer Lane and Dessau Road in northeast Austin; The Market at Anderson Harbor, an Albertson's-anchored project on Highway 183 at Anderson Mill; and Stassney Heights, a Lowe's and Albertson's-anchored center at Stassney Lane and IH-35.

Taking advantage of downtown Austin's full office market, where numerous loft and apartment projects are planned, including a 243-unit Post Properties complex set to open this fall, more than 500,000 sq. ft. of retail is either under construction or in the planning stages in the Central Business District.

As of mid-year 2000, rents for 1,500 to 2,000 sq. ft. spaces averaged about $27 per sq. ft. and went as high as $35 per sq. ft., compared to $25 to $30 per sq. ft. at mid-year 1999.

"For the remainder of 2000 and beyond, the Austin area retail market should continue to experience steady, positive growth," says Terkel, who projects that overall occupancy rates will remain well above 90%, rental rates will remain strong, and retail expansions will continue.

Dallas/Fort Worth If Austin is leading the pack in retail development, Dallas/Fort Worth is not far behind. "During the first half of 2000, DFW saw one of its most active six-month periods ever. We now have two major regional malls underway, as well as several significant open-air centers," says Herbert D. Weitzman, CEO of The Weitzman Group, based in Dallas. He attributes the demand for the new space to aggressively expanding existing retailers as well as a significant number of new retail concepts penetrating the market.

Smith agrees that in Dallas/Fort Worth, there is a lot of activity coming and not much going. "We're tracking between 100 to 110 retail developments in the DFW area, which is an all-time high." A high percentage of those are grocery-anchored and neighborhood retail, adds Smith, who attributes the spate of development to "exceptionally strong growth in the area's population and its housing and job markets."

At mid-year 2000, the Dallas area reported a 3.7% unemployment rate, and the Fort Worth/Arlington area reported a 3.8% rate. For all of 2000, the area is expected to create approximately 100,000 new jobs. And Smith predicts that activity will continue apace until about 2005 or 2006, at which time "if we run true to trend, our next economic cycle will begin and things will start to slow down."

In the 1970s and 1980s, most everyone wanted to live in the suburbs. "But in Dallas/Ft. Worth and Houston especially, we are beginning to see a big move into the downtown areas where you see a lot of the office spaces being converted into lofts," Smith says. "That seems to be true especially among the young people coming in from big urban areas such as New York and Chicago who like a more eclectic, hip lifestyle." Smith adds that retailers, at least so far, seem disinclined to take advantage of the trend.

If retail activity is slow downtown, that couldn't be farther from the case in other areas of Dallas/Fort Worth. One of the area's most ambitious projects, Chicago-based General Growth Properties' Stonebriar Centre mall, incorporates 1.6 million sq. ft. of space, and is located on Preston Road in Frisco, a former farming community that now has more than two million sq. ft. of retail space underway.

Anchored by JCPenney, Macy's, Sears and Nordstrom, the mall opened in the third quarter of 2000. Preparing to give Stonebriar Centre a run for its money, Bloomfield Hills, Mich.-based The Taubman Co.'s 1.5 million sq. ft. the Shops at Willow Bend will open next year, a few miles away at the Dallas North Tollway and Park Boulevard.

The Centre at Preston Ridge also recently opened in Frisco, with a total of more than 1 million sq. ft. in an open-air configuration. Meanwhile, in Plano, the Shops at Legacy (a high-end, two-phase, 265,000 sq. ft. center featuring retail, restaurant and entertainment spaces) recently opened at Legacy Town Center, a 150-acre mixed-use development in the heart of Legacy Business Park.

Along with existing retailers that continue to expand in the market, other projects of significance that either are underway or opening this year in or around Dallas/Fort Worth include:

The Plaza at Cedar Hill, one of the largest centers to be built in South Dallas in several years, which will encompass 320,000 sq. ft. on US 67; Twin Creeks Village, at McDermott and US 75; and Las Colinas Village, a 130,000 sq. ft. center at state highway 114 and MacArthur, which opened its first phase in the third quarter of 2000.

Houston Thanks to a stable, growing economy, Houston's retail market also continues to flourish in the areas of occupancy, leasing, construction and rental rates. "We estimate that new construction will add approximately 2.5 to 3 million sq. ft. of new, multi-tenant space to the 118 million sq. ft. retail market in 2000," says George Weatheral, senior vice president of Cencor Realty Service. This year, he added, construction is focusing primarily on community centers - driven in part by grocery chains' aggressive growth strategies - as well as on a number of specialty and power centers.

Edward F. Page, principal of Boyd Page, a Houston-based commercial real estate brokerage firm, attributes the local retail development activity to a combination of additional market factors. These include a strong United States economy, international ties, growth, comp store sales and the fact that Houston is the state's fourth-largest city. "Something a lot of people may not realize is that half of the world's largest non United States-based corporations operate out of Houston, and the city ranks third behind New York and Los Angeles in the number of foreign consulates based there," Page says.

In particular, downtown Houston is attracting the collective attention of retail developers. The area is in the process of undergoing significant revitalization. "Our new venue for the Astros, which opened three years ago, has been extremely successful. We are now averaging about 35,000 people per game, whereas before, we averaged about 15,000. So obviously, there is the draw of downtown," Page says.

The conversion to loft apartments of the historic Rice Hotel also has enhanced the appeal of downtown Houston, according to Page. "In the last two to three years there has been an explosion of bars and restaurants. Main Street is really starting to become a focus of activity, and that has stirred up a lot of interest in downtown and the surrounding areas," he says.

Capitalizing on downtown's allure as well as that of Midtown, which also is beginning to come into its own, St. Louis-based Pace Properties is constructing high-end apartments in the midtown area that will incorporate a limited amount of retail on the ground level.

In new construction, rental rates are reaching unprecedented heights for the Houston area. For Class "A," small-tenant, in-line space inside the Loop, rents are running about $26 to $28 per sq. ft. per year. For Class "A" in a grocery-anchored center, rents for small-tenant space are averaging $17 to $19 per sq. ft., with rates as high as $22 per sq. ft. along major corridors.

San Antonio Given the city's status from 1990 to 1998 as the nation's second-fastest growing major city (second only to Phoenix), it comes as little surprise that retail development in San Antonio continues in full swing. During the past year, the area added approximately 17,000 new jobs, a 2.5% growth rate. November 1999 unemployment figures remained at 3.1%, down half a percentage point from mid-year.

Since 1995, the market has added an annual average of 900,000 sq. ft. of new retail space. New construction in 1999 added approximately 700,000 sq. ft. in Alamo City, with retail development concentrated primarily in grocery-anchored projects as well as a limited amount of specialty retail space.

A handful of retailers closed their doors in San Antonio in 1999. Drug Emporium closed its two stores; Lot$Off closed nine stores, exiting the Texas market completely; Service Merchandise closed three stores; and HQ, a home improvement chain, closed its five stores as part of a nationwide shutdown.

For 2000, numerous retail projects are under construction. In addition, the market is experiencing significant activity from expansions at existing projects and from freestanding big box retailers.

With so many new grocery chains moving into Texas - and rapid expansion of the existing ones - running out to the store for a loaf of bread could assume proportions worthy of the Lone Star State.

Which store to choose?

Joining the fiercely competitive line-up are major players Wal-Mart Supercenter and Super Target, which offer full-line groceries in addition to their department stores.

The first Super Targets in Texas opened in Dallas/Fort Worth in July. Wal-Mart also will open several Neighborhood Markets within Texas this year. At 45,000 to 50,000 sq. ft., the stores are designed to serve a smaller trade area than Supercenters. H-E-B, another grocery chain, is working on its first area location, an upscale, 80,000 sq. ft. store that will open in Fort Worth.

With grocery-anchored centers dominating non-mall retail construction in many areas, large-format stores such as Albertson's, Kroger, Tom Thumb and Minyard, have planned expansions into rapidly growing suburban markets such as Coppell, Frisco, Allen and Keller.

A number of new retail concepts also will debut throughout Texas this year.

Nordstrom opened two off-price Nordstrom Rack stores in Hurst and Plano. The Great Indoors, a large-format home specialty store featuring a Sears concept, also will enter the market. Along with Costco, a competitor to Sam's Wholesale Clubs, also new to the Texas market is Robb & Stuckey, an upscale home furnishing store based in Fort Myers, Fla.

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