Retail Traffic

Retail Far from Dry in Growing Southwest

Thanks to strong housing sales, robust job growth and near record unemployment, the Southwest region of the United States continues to experience a retail surge. Lured by the beep of cash registers at nearly every store in most major cities across Texas, Nevada, Arizona, New Mexico, Oklahoma and Arkansas, more retailers are migrating to the region - and current players continue to expand.

The Southwest offers sound retail markets with great opportunities, says Jeanette Rice, vice president of research for Dallas-based AMRESCO, a financial services firm. "There is renewed confidence in retail markets due to lower levels of new supply coming on line and to sustained health in the economies of the region and in retail sales," she says.

The Southwest region is seeing an influx of new retailers, new restaurants and new urban shops. Retailer expansion has become the rule rather than the exception, explains Michael A. Pollack, president of Chandler, Ariz.-based Michael A. Pollack Real Estate Investments. "Retail and real estate go hand-in-hand. Retail follows rooftops, and there is so much residential being built in places like Las Vegas and Phoenix that retail is following it."

Herbert D. Weitzman, president and CEO of The Weitzman Group, Dallas, adds Texas to the list of active areas. "The Texas retail market continues to be very dynamic and, as a result, there is an amazing amount of retail expansion."

Overall, retail activity is expected to be brisk throughout the region, says Mickey Ashmore, president and CEO of Dallas-based United Commercial Realty (UCR). "We're seeing a realistic pace of development, based on job growth. Most of the projects are well-conceived, well-located developments with good pre-leasing."

Texas Texas' gross state product is expected to increase 3.7% next year to $617.7 billion, which is on top of a 5.4% increase in 1999, according to the Texas Comptroller of Public Accounts. Personal income is predicted to increase 6.2% next year, while non-farm employment should rise 2.1%, and the population is forecast to increase 1.8% to 20.6 million.

Such strong population increases and job creation in major cities such as Houston, Dallas, San Antonio and Austin is spurring retail development, says Andrew "Drew" Alexander, president of Houston-based Weingarten Realty Investors. "Most people still subscribe to the Greater Sunbelt theory: People will continue to migrate south to Texas, Arizona and Florida as baby boomers start to mature. That will result in continued retail growth," he says. "You want to pinch yourself because it's so good."

Grocery stores have become very competitive in Texas, particularly with the new state-of-the-art stores Kroger is now constructing. "Randalls, which has built great stores for years, now has more access to capital with the Safeway buyout and, therefore, should remain very competitive," Alexander says. "H-E-B, which has its Pantry stores, is now coming out with more of an upscale, interactive store, offering more prepared entrees, an incredible selection of more exotic and unique foods, and so forth."

In the big-box arena, Builders Square has closed its outlets in the Lone Star State, ceding the market to Lowe's and Home Depot, Alexander notes. "Staples is coming into Texas and will be very competitive with OfficeMax and Office Depot. And Weiners, the clothing store, is becoming more active after having successfully worked its way through Chapter 11."

Houston's retail market was reported to be 86% occupied in May, up a fraction from the same period a year ago, according to O'Connor & Associates, a Houston-based real estate marketing, research and consulting firm. Local retailers have absorbed more than 1.8 million sq. ft. of retail space during the first half of the year. However, another 4 million sq. ft. is under construction and 2.7 million sq. ft. is proposed.

Perhaps the biggest news in Texas these days is that retail development is expected soon in the central business districts of Houston and Dallas, since there is a fair amount of new residential construction - particularly loft units.

"For years, Houston had very few homes downtown, but the percentage has increased substantially over the past several years," Alexander says. "With the opening of the new baseball stadium next spring, there is a lot of discussion about a retail and entertainment center near the convention center and stadium."

Dallas is reporting record retail activity, according to players in the area. "Demand is fueling retail construction," says Jeff Deweese, regional manager in the Dallas office of Marcus & Millichap Real Estate Investment Brokerage Co., Palo Alto, Calif. "Median incomes in the Metroplex continue to be among the highest in the state."

Dallas-Fort Worth (DFW) still ranks in the Top 10 nationally in terms of home affordability, Weitzman adds. At mid-year, the DFW area reported one of its strongest home resale markets ever; resales in June 1999 increased approximately 7% over June 1998.

"As a result of leasing demand, the DFW retail market continues to enjoy a strong occupancy rate of just under 90% on a total inventory of 121.2 million sq. ft. of space," he says.

Austin's economy has remained one of the strongest in the nation during the past 12 months, with employment increasing 4.1%, almost twice the national average, according to

AMRESCO. And San Antonio's economy is growing at an impressive pace. For the 12 months ending in July, 21,600 new jobs have been added, an increase of 3.2%, according to the U.S. Bureau of Labor Statistics.

Nevada Retailers are still gambling on Las Vegas and Reno - for some very good reasons. The two cities are leaders in job formation. Employment in Las Vegas in May of this year was up 6%, according to the U.S. Bureau of Labor Statistics.

"We're still having 22,000 homes built this year, and the same thing will happen next year," says Kit Graski, first vice president in the Las Vegas office of Los Angeles-based CB Richard Ellis. "That equates to almost 60,000 people moving to Las Vegas."

Meanwhile, visitor volume was 32.3 million in fiscal 1999, up from 30.6 million in 1998, according to the Center for Business and Economic Research at the University of Nevada-Las Vegas.

Retail is still strong, with a vacancy rate at or below 5%, and we're seeing new retailers come to town," Graski says. Lowe's is under construction in its first deal, and restaurants such as Claim Jumper are coming to the state. "There is a lot of new construction, with most of it substantially pre-leased."

Charles Creigh, principal of NewMarket Advisors, a locally based tenant representation firm, attributes the increased retail activity to increased population growth. "All the retailers are expanding, including The Sports Authority, Marshalls, T.J. Maxx and Costco," he says. "Wal-Mart just leased five new stores, and it's the same thing with Target. Raley's acquired Albertson's and is continuing expansion, and Lucky Foods is expanding, as is Zany Brainy and Hollywood Video."

The economic picture will stay bright, he adds, "as long as people keep coming to Nevada and new casinos are being developed."

The Reno area also is flourishing, reports Gary Baker, senior vice president and managing partner in the Reno office of Lee & Associates, Las Vegas. Residential growth is spurring retail demand, and the area has low unemployment as well as a population with increased disposable income. Some 100,000 new residents are expected in the area during the next decade, he adds.

Arizona Few states have as much economic and residential growth as Arizona. In Phoenix, employment growth increased 3.4% from May 1998 to May 1999, making it one of the Top 10 metropolitan areas in the nation, according to the U.S. Bureau of Labor Statistics. Cognetics Inc., a Cambridge, Mass.-based research firm, ranks it as the No. 1 metropolitan area in the country for new entrepreneurial companies.

Strong residential and commercial construction levels are being fueled by the heady employment and population growth, practically ensuring a healthy retail real estate market.

Experts are predicting that 60,000 to 65,000 new jobs will be created in the Phoenix area this year, Pollack notes, adding that they will be in new positions in the advanced technology, retail, finance, insurance and real estate fields. "Phoenix continues to absorb an enormous amount of retail space because the state continues to absorb an enormous amount of people," he says.

The recently completed $350 million Bank One Ballpark has resulted in a development frenzy downtown, Pollack adds, and retail sales in the area are above the national average, a result of the strong tourism industry.

Dave Cheatham, senior vice president in the Phoenix office of CB Richard Ellis, adds that the city's vacancy rate is "the lowest we've seen in years" at 5.5%. "The market is tightening, so rental rates are increasing. Tenants are looking for expansion opportunities."

Wal-Mart is opening its first SuperCenter in the area, and Lowe's is getting ready to open its first store in the state. Sears chose Phoenix for the second U.S. location of its Great Indoors concept.

Brokers report that more than 90% of the retail space under construction is pre-leased. Regional centers have higher vacancies, in the 12% range, while community centers have a vacancy rate of about half that. "It appears Phoenix will continue to ride the real estate boom into the millennium," Pollack says.

In Tucson, Marcus & Millichap reports job growth will be around 5%, up from 4% in 1998, resulting in 16,000 new jobs. "Personal income is advancing at an annual rate of 7.9%, compared with 6.5% last year," says Dave Illsley, regional manager in the company's Phoenix office.

New Mexico The economic picture in Albuquerque, one of state's major cities, remains bright. Employment is expected to increase 1.8% this year, while the unemployment rate is edging downward to 4.5%, from 4.6% in 1998, according to Dismal Sciences, a West Chester, Pa.-based economic forecasting firm.

Bob Feinberg, president of locally based First Commercial Real Estate Services, says retail is strong in Albuquerque. "But we think we will see a leveling off because all the big players are already here or coming here.

"It's rumored that Lowe's is coming to town, and some specialty retailers are looking around, such as Zany Brainy," he says. "Staples is new to town and is making good inroads; Wal-Mart has a SuperCenter and is trying to do a couple more in town; and there is also a rumor that Whole Foods may open a store here."

Oklahoma Oklahoma's two largest cities report vigorous retail activity. Tulsa, for instance, has generated 41% of the state's job growth during the past 12 months. Diversification of the city's economic base has helped Oklahoma's overall economic outlook. "Tulsa was very oil-dependent, but now we have diversified," says Max Heidenreich, commercial department manager of locally based First Commercial Real Estate Services.

The city had an unemployment rate of 3.3% as of June 1999, unchanged from May and down nearly half a point from June 1998, according to the U.S. Bureau of Labor Statistics. Some 16,000 new jobs are expected to be created in 1999 and 12,000 more in 2000, Rice predicts.

Kohl's Department Store is expected to enter the market next year, and a Wal-Mart SuperCenter is planned. "Several big-box spaces remain vacant west of U.S. 169," he says.

The economy also is strong in Oklahoma City. Employment growth for the year ending in June 1999 was 2.5%, slightly above the national average of 2.2%, according to the U.S. Bureau of Labor Statistics. Employment is expected to grow to 14,500 people over the next year.

"Oklahoma City's diversified employment base and mended economy has driven a strong retail sales pace during the 1990s," says Chris H. Palmer, vice president of retail services in the local office of CB Richard Ellis.

Home Depot has acquired a site that will be part of a new power center development, including a Wal-Mart SuperCenter and a new Sam's Club, the fourth in the area. "Staples recently opened its first store in north Oklahoma City, announced a second store in south Oklahoma City and can be expected to build on this base in the future," he adds.

Restaurant activity hasn't been quite as brisk lately, but some new chains are expected to enter the market in 2000, Palmer says. Newport Beach, Calif.-based Marie Callender's is opening its first location in the suburb of Norman and has received municipal approvals for the construction of a second store in suburban Edmond.

Arkansas In Arkansas, total employment in the state capital of Little Rock is expected to increase 0.6% this year, with an unemployment rate of 3.1%, down from 4% in 1998, according to Dismal Sciences. Personal income growth is pegged at 4.8%. The manufacturing industry, which was once a growth driver, is reducing payrolls as resource-based industry contracts.

The state also is experiencing good retail activity, says Daniel B. Hurwitz, executive vice president of Cleveland-based Developers Diversified Realty, which is expanding Spring Creek Centre in Fayetteville. Some areas, including Fayetteville in the northwestern part of the state, are seeing new retailers in the market, such as Old Navy and Bed Bath & Beyond.

Patt O. Walt, president of Bentonville, Ark.-based Walt Realty Group Inc., agrees that northwest Arkansas is reporting strong economic growth and a number of new retailers. "We're seeing the emergence of a new middle class, and with it, new retailers such as Circuit City, Abercrombie & Fitch, Toys 'R' Us and Walgreens," Walt says. "There is a lot of home building and office development in the area, and retail is strong."

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