Retail Traffic

Texas Retail Blooms After Long Dry Spell

Secondary markets are not overlooked by expanding retailers.

Take a giant landmass with 21 million people. Add impressive population growth, increasing jobs and rising disposable income. Season with a maturing of the retail real estate market. What do you have? Texas -- a retailer's paradise.

In the short span of a few years, retail in the Lone Star State has been transformed from a national joke into an American success story. The empty stores of a decade ago have been filled with new retailers. Well-located development is occurring in the state's larger cities -- Houston, San Antonio, Dallas and Austin -- but retailers also are opting for secondary and tertiary markets. Shopping centers that defy labels are sprouting and could spread elsewhere. And retail competition, once cutthroat, has become more gentlemanly.

The reason, say analysts, is that retailers figure the Texas consumer pie is big enough for everyone. "The Texas market will probably outperform the national market at every level," says Herb Weitzman, president and chief executive officer of The Weitzman Group, Dallas. "The market is in the best shape we've seen in years, with big gains in occupancy rates, rental rates and a big increase in space. The new construction is substantially preleased, though, since everyone is aware of the lessons of the 1980s."

Drew Alexander, president of Houston-based Weingarten Realty Investors, agrees that the Texas economy has emerged from its doldrums, with strong population and employment growth, an increase in retail sales, and restrained retail construction in selected markets."

Texas reflects a lot on what's going on in the nation, and the economy is generally good," says Alexander, who is also the president of the International Council of Shopping Centers. "In retail, there is a lot of competition, with some malls struggling and some doing great. But in general, the industry is doing well."

Houston Houston reported an additional 60,000 jobs through September of last year, an increase of 3.3 percent, with an unemployment rate of 4.9 percent, according to the Texas Workforce Commission and the U.S. Bureau of Labor Statistics. Population growth for 1997 was at a rate of nearly 2 percent.

Houston last year also experienced surges in new-home sales, resales of existing homes, and sales of new cars and trucks, according to Dallas-based AMRESCO Research.

Most of the city's retail growth during the past three years has come from expanding power-center-type retailers, including Best Buy, Bed Bath & Beyond, Borde rs Books, Barnes & Noble, MJ Designs, and Michael's.

"In addition, at least five giant multiplex theater complexes have either recently opened or are under construction," says Alexander. "Other retailers expanding include Academy Sports and Outdoors, Cost Plus, Cheesecake Factory, and Capital Grill."

Scott MacDonald, president and chief executive officer of Houston-based CenterAmerica Property Trust, notes that major anchor tenants have been reconfiguring their size requirements. "Kroger in Houston has transitioned from 30,000 sq. ft. and 40,000 sq. ft. to about 65,000 sq. ft.," he says. "Albertson's has come into the market in Dallas and now more strongly in Houston. There have also been some reductions. Venture sold most of its stores to Kmart, and Montgomery Ward has cut back, as has Media Play. It's a very competitive market."

Dallas/Fort Worth The Dallas/Fort Worth area reported a 4.4 percent gain in employment, or 104,800 jobs, through November of last year with a 3.5 percent unemployment rate, according to the Texas Workforce Commission and the U.S. Bureau of Labor Statistics.

Employment is forecast to grow 2 percent on average until 2001, according to Regional Financial Associates Inc., an economic consulting firm in Philadelphia.

Rents in Dallas/Fort Worth are expected to increase by nearly 4 percent this year, with occupancy up one percentage point to about 89 percent, says M/PF Research Inc., a Dallas-based research firm.

One of the big trends in Dallas/Fort Worth has been selective development in the home improvement market, notes Vaughn Miller, president of retail of Henry S. Miller Commercial Realty, Dallas. Lowe's, for example, entered to compete with Home Depot.

"They came in with five stores and a huge advertising campaign and now every store is reporting records," he says.

San Antonio Economic and retail growth also is strong in the state's third largest metropolitan area, San Antonio. Employment increased about 3 percent from September 1996 to September 1997, accounting for the creation of 19,400 jobs, reports the Texas Workforce Commission and the U.S. Bureau of Labor Statistics.

This rate of job growth is slightly ahead of the national average of 2.4 percent. Economists estimate that, between 1997 and 2001, employment will grow 1.6 percent on average in comparison with the U. S. average of 1.4 percent, according to Regional Financial Associates.

Grubb & Ellis reports that San Antonio's occupancy rates at mid-year 1997 were at about 90 percent.

Rental rates were up about 1 percent and rising, says the National Real Estate Index.

"San Antonio, which has a strong economic base built on telecommunications, tourism and trade, reported unemployment in November was 3.8 percent, below the state level of 4.9 percent," Weitzman says.

Austin The Texas capital city recorded an employment increase through September of 1.4 percent, or 7,800 jobs, according to the Texas Workforce Commission and the U.S. Bureau of Labor Statistics. The largest percentage increase, the commission reports, was in the retail sector.

The Austin economy is cooling off after a four-year boom, analysts note, but is still outperforming other Texas metropolitan economies. One problem is a dearth of skilled workers available to fill high-tech jobs.

"Austin's growth is a result of its diversified economic base of state government, higher education, high tech and manufacturing," says Weitzman. "The unemployment rate is one of the lowest, 2.9 percent as of November 1997 -- and below the state average of 4.9 percent."

For the most part, retail occupancies are up. Austin had an occupancy rate of approximately 92 percent, up one percentage point from a year ago, reports Flick InfoServe.

And according to F.W. Dodge/McGraw-Hill Inc., a New York-based forecasting firm, new construction during 1997 totaled 1.5 million sq. ft. Occupancy should remain stable, and Dodge predicts that construction levels will outpace absorption in both 1999 and 2000.

Smaller markets While the big four cities typically get all the attention, retailers now are concentrating on the Lone Star State's smaller markets, says R. Eric Seitz, president and chief executive officer of The Seitz Group Inc., Dallas.

"We're seeing secondary and tertiary markets getting some response from the retailers, and generally, new retailers are doing well there," he explains. "In Lubbock, for instance, sales per square foot are better than the metro areas of Houston and Dallas."

El Paso is experiencing solid growth, Seitz adds. "Amarillo is a good retail market, and so are Midland, Abilene and San Angelo," he says. "The good secondary markets are the biggest surprise in Texas retail. We're finding people in those markets have surprisingly high [levels of] disposable income, and they are not mortgage-poor. But they are price-conscious, so category-killers do well."

Data for El Paso, as reported by the Texas Workforce Commission and the U.S. Bureau of Statistics, is a mix of ups and downs: Employment gained 0.9 percent through October and is experiencing modest growth, representing an economy in transition. Manufacturing employment declined on a net basis, but the export sector has expanded significantly as a result of NAFTA. Unemployment rates, which are typically high because of the area's large immigrant population, is at 11.1 percent. The population increase averaged 2.4 percent for the past seven years.

The economy is strong in McAllen (Hidalgo County), which is considered the retail hub of the lower Rio Grande Valley. The area is the third fastest growing metropolitan area in the country. According to the U. S. Census Bureau, McAllen's population has increased an average of 3.7 percent a year since the beginning of the decade.

According to the Texas Workforce Commission and the U.S. Bureau of Labor Statistics, job growth in Hildago County has averaged 5 percent a year since 1992. Because of the large number of immigrants from Mexico entering the McAllen labor force, employment is 7 percentage points higher than the U.S. average, and was pegged at 12 percent during the second quarter of last year, the commission reports.

In Corpus Christi, the economy has experienced moderate growth for the past five years, with job growth averaging 2 percent per year, says the Texas Workforce Commission and the U.S. Bureau of Labor Statistics. Population has risen 1.5 percent a year for the past seven years. Tourists pump an estimated $250 million into the economy each year, since Corpus Christi is the second most popular vacation destination in the state. Retail sales in the area are expected to jump 13 percent from 1997 to 2001.

Yuppies stimulate expansion With such strong economic data statewide, retailers are starting to spread out because the cities are getting far more cosmopolitan. Jeanette I. Rice, vice president of research at AMRESCO Research, says the state's phenomenal growth rate means more retailers are expressing interest.

"Lowe's is coming in Dallas and Houston, and it's interesting because you would think that Lowe's would stay out because Home Depot has done well here," she says. "But they see it not as a matter of just taking market share from Home Depot. They see the population increasing, and they want a part of that growth. All this population growth is creating more demand for retail."

Mark Tweed, senior designer at Los Angeles-based MCG Architects, which has designed a number of Texas projects, adds that 20 years ago, few specialty retailers would have touched the state. But a boom of young couples with children and large disposable incomes has changed that.

"There's an incredibly young yuppie crowd in urban Texas as never before. And they're pretty much changing the way retail is in Texas," Tweed says.

Yet retailers aren't blindly following each other to the state. E.D. Wulfe, president of Houston-based Wulfe & Co., notes that retailers, particularly category-killers, have a simple strategy.

"The majority of the big-box users have made inroads into Texas," he explains. "And now it's more of a case of picking and choosing and filling in to make sure they have the major markets covered."

Wulfe says the biggest expansion activity today is from supermarkets, which continue to grow and expand in almost every market, particularly as Texas metropolitan areas continue to increase in population. Albertson's, Kroger, H.E.B. and Randall's are prevalent forces in new retail construction, he says, adding, "Secondly, there are the major megatheaters, the 30-screen complexes, that are proliferating everywhere."

One area of concern in the Texas retail environment is the future of mid-size malls. Wulfe notes that smaller malls with one or two department stores are being out-positioned by superregional or super power centers.

Alan Hassenflu, managing director of Houston-based Trammell Crow Co., notes that while there is retail expansion, there also is contraction.

"What we're seeing is that category-killers, especially the dominant ones, are thriving, but some of the lower-place finishers are struggling," he says. "Oftentimes, each category can support two, but it can be tough when there are three or more."

Nevertheless, Hassenflu says, retailers will continue to expand and grow, primarily in smaller markets such as Amarillo, El Paso, Beaumont, the Valley, Laredo and Brownsville. "Retailers aren't going into markets that don't have any potential for them," he says, "but they're not going into fully expanded ones, either."

At the same time, as new construction slows, renovation will pick up speed, according to WRI's Alexander. "There are a lot of shopping centers in the 100,000 sq. ft. to 200,000 sq. ft. range built in the 1960s and 1970s that are getting older and need to be remodeled and redeveloped," he says. "[Oftentimes,] the current ownership doesn't have the expertise or the capital to do this. They're receptive to selling, and we're receptive to buying. As the industry matures, renovation is a logical and natural thing."

Tom Sineni, president of the San Antonio office of Dallas-based United Commercial Realty, adds that the concept of shopping centers in Texas is changing. "We've seen a couple of centers built that weren't traditional anything -- not a lifestyle, fashion or neighborhood shopping center," he says. "They have high-end clothing, like a Tootsies, as well as Whole Foods, Office Max, Bed Bath & Beyond, and Whole Earth Provision."

With increasing population, healthy job growth and increased consumer spending, the Lone Star State is expected to attract the attention of more retailers. At present, there are few clouds on the Texas retail horizon.

Mike Sheridan is a Houston-based freelance writer.

* Roanoke Town Plaza in Roanoke is a new development of Fort Worth, Texas-based Hillwood Development Corp. The mixed-use project will feature several components, including retail space, office space, a hotel and neo-traditional multi-family housing. Plans are for the design to look like downtown Main Street complete with a town square. Estimated completion on the project is spring 1999.

* Several new developments are on the drawing board for Dallas-based Trammell Crow Co. In Houston, the company recently completed an Uptown Collection project in the Galleria area. The 43,000 sq. ft. specialty center includes retailers such as Criess Collection Furniture, Capital Grille Restaurant and Edwin Watts Golf Superstore.

Trammell Crow also is developing a 130,000 sq. ft. neighborhood center as part of a larger masterplanned community in the city. Colony Lakes will feature a Kroger Signature store and Walgreens when it is completed in August.

In San Antonio, the focus is on two specialty centers and a power center. Alamo Quarry Market and Quarry Crossing both are being developed on the site of a former cement plant. The 530,000 sq. ft. Alamo Quarry project, which features such tenants as Act III Theatres, Pottery Barn, Harolds, Whole Foods Market, Michaels, Tootsies and nine restaurants, is expected to be completed this month. The 55,000 sq. ft Quarry Crossing project is scheduled for completion later this year. Anchors for the project have not yet been announced.

Trammell Crow also is developing Arbor Park Shopping Center in San Antonio. The 139,000 sq. ft. project will feature Michaels, Sun Harvest Grocery and OfficeMax when it is completed in November.

* Atlanta-based JDN Realty Corp. is developing Valley Ranch Marketplace in Irving. The 640,000 sq. ft. power center will feature a 215,000 sq. ft. Wal-Mart Supercenter, a 60,000 sq. ft. United Artists Theater, another anchor and several small shops when it is completed in April 1999. In addition, 15 outparcels are for sale or ground lease.

* Tenants continued to open last year at The Fountains on The Lake Shopping Centre in Houston. Owned by Houston-based GORCAP L.L.C., the 600,000 sq. ft. project is approximately 92 percent occupied and features Border Books and Music, Oshman's SuperSports, OfficeMax, Stein Mart, Hobby Lobby, Samsonite Travel Expo, Rack Room Shoes, Bed Bath & Beyond, Chair King, and Loews/ Sony Theatres. Houston-based Gemstone Management Co. is the center manager.

* The Jaffe Cos., Austin, Texas, has two new developments in the works in Texas. Huebner Oaks Center in San Antonio is described as a lifestyle center with entertainment, fashion and dining tenants in a setting that has plazas, pedestrian links and heavy landscaping. The 400,000 sq. ft. center is scheduled for completion in October. Some of the anchors include AMC Huebner Oaks 24, Gap/Gap Kids, Bed Bath & Beyond, Champps Americana, On the Border, Pier 1 Imports, Ross Dress for Less and Victoria's Secret.

The company also is developing Boca Chica Place in Brownsville, a 175,000 sq. ft. community center that will be completed in August. It will be anchored by Target, Office Depot, Michael's Arts & Crafts and Payless ShoeSource.

* Dallas-based Lincoln Property Co. has a mixed bag of projects in the works in Texas. It is developing LincolnPark, a 150,000 sq. ft. upscale retail complex in Dallas with a first-quarter completion date set. Anchors include Simon David, The Container Store, Barnes & Noble and The Cheesecake Factory.

The company is developing a similar project in Fort Worth. Trinity Commons is a 225,000 sq. ft. upscale retail center also with a first-quarter completion date. Anchors include Tom Thumb New Generations Market, Crown Books and DSW Shoes.

In Houston, Lincoln Property Co. is developing Willowbrook Plaza, a 370,566 sq. ft. outdoor lifestyle and entertainment center. AMC Theatres will anchor the center, with completion set for first quarter 1999.

In addition to these new projects, the company is redeveloping Hancock Center in Austin. A June completion is set for the 450,000 sq. ft. center that features Sears, H.E.B. grocery store and Old Navy Clothing Co.

* The Mills Corp., Arlington, Va., Simon DeBartolo Group Inc., Indianapolis, and Kan Am, Munich, Germany, recently opened Grapevine Mills in Grapevine. The 1.5 million sq. ft. value-oriented mall features approximately 15 to 18 anchor tenants and American Wilderness Experience. The Dallas office of Baltimore-based RTKL Associates Inc. designed the project, which features eight stylized entrances including one of a Texas map.

* An 18,000 sq. ft. expansion is scheduled to be completed this month on San Marcos Factory Shops, a village-style factory outlet center in San Marcos. The center, which currently features 482,000 sq. ft. of GLA, is owned and managed by Baltimore-based Prime Retail.

* Several new anchors opened their doors at shopping malls managed by Chicago-based General Growth Properties Inc. At Deerbrook Mall in Humble, Texas, JCPenney opened a new, 103,000 sq. ft. store, and a 210,000 sq. ft. Dillard's department store replaced Macy's after undergoing a partial remodel. Other anchors at the 1.2 million sq. ft. center include Foley's, Mervyn's, Sears and AMC Theatre. A soft play area also was added to the mall.

Sears recently opened a 165,000 sq. ft. store at Pasadena Town Square in Pasadena, Texas, joining existing anchors Dillard's and Foley's. The 754,000 sq. ft. mall also is beingrenovated to include a new roof, landscaping, lighting and parking lot overlay. That project is scheduled to be completed this spring.

At Town & Country Mall in Houston, Saks Fifth Avenue replaced Marshall Field's last fall with a 140,000 sq. ft. store. Other anchors at the 1 million sq. ft. mall include Dillard's, JCPenney and Neiman Marcus.

Also in Houston, JCPenney will join the anchor lineup in October at The Woodlands Mall, which also includes Dillard's, Foley's, Mervyn's and Sears. This past fall, a soft play area was added to the 1 million sq. ft. center, and Gloria Jean's Cafe opened in center court.

* A 40,000 sq. ft. expansion is planned in four new buildings at Town & Country Village in Houston, a project of Houston-based Moody Rambin Interests Inc. It is expected to be completed in May with tenants opening in late summer and early fall. The 420,000 sq. ft. complex currently features Randall's Flagship, Barnes & Noble, Linens 'N Things, Pottery Barn, Restoration Hardware, and AnnTaylor.

* Indianapolis-based Simon DeBartolo Corp. has a number of projects under way in Texas at both its malls and community centers. -- At 1.38 million sq. ft. Barton Creek Square in Austin, a food court will be added in May and General Cinema added in March 1999. -- Dillard's will add 45,000 sq. ft. of space to its store at 571,312 sq. ft. Broadway Square in Tyler. The center also is undergoing a renovation. -- Redevelopment work is under way at Irving Mall in Irving. Barnes & Noble and Old Navy Clothing Co. will open at the 1.1 million sq. ft. center this spring, and General Cinema will open this fall. -- At 968,000 sq. ft. La Plaza Mall in McAllen, renovation work is under way with grand reopening set for November. -- The common area and food court at 867,685 sq. ft. Richardson Square in Richardson is being renovated, and Stein Mart and Ross Dress for Less will open there this summer. -- An additional 7,000 sq. ft. will be added to an existing theater, which will be torn down to make room for OfficeMax at 650,000 sq. ft. Valle Vista mall in Harlingen. It is scheduled for completion this fall. -- In Hurst, 1.1 million sq. ft. North East Mall is undergoing an expansion and renovation. Nordstrom and Saks Fifth Avenue will join the anchor lineup in fall 2000. Plans also are in the works for a new community center to be named North East Plaza. -- At 1 million sq. ft. Windsor Park mall in San Antonio, an Act III Theatre will be added this fall. -- Lakeline Plaza is a new development in Cedar Park that will total 368,348 sq. ft. when completed this spring. Most recent additions to the tenant roster include Linens 'N Things, TJMaxx, Toys "R" Us, Old Navy Clothing Co. and OfficeMax.

* Houston-based CenterAmerica Property Trust has three projects under way in Houston. Renovation work will be completed this month on Stella Link Shopping Center. A new anchor -- Davis Food City -- and other small retailers also are being added at the 101,130 sq. ft. center.

Construction will be completed in May on Braesgate Shopping Center in the southwestern part of the city. The project involves demolishing and rebuilding the 86,383 sq. ft. center to include a new Albertson's grocery store and 23,000 sq. ft. of smaller tenants. Hearthstone Shopping Center in northwest Houston is being expanded and renovated to include a new Kroger Signature store. It also is scheduled to be completed in May.

A new Kroger Signature store is being added at Plantation Plaza in Clute, Texas, and at Spencer Square Shopping Center in Pasadena, Texas. Both centers are undergoing renovations with completions scheduled for this fall.

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