Dallas-Fort Worth’s retail real estate market is strong, with high net absorption and heavily pre-leased deliveries causing occupancy to rise to an all-time high.
Occupancy and rental rates, however, are expected to level off in the short-term as construction starts slow and completions take longer to come online, according to a report by commercial real estate firm CBRE Group Inc. (NYSE: CBRE).
Multiple construction projects across North Texas have been sidelined as labor and borrowing costs remain elevated, specifically for those in the early stages, the report says.
But overall, the Dallas-Worth retail market remains robust, said Daniel Taylor, CBRE’s managing director of retail for Texas and Oklahoma.
“We’re in a good spot,” Taylor said in an interview with the Dallas Business Journal. “As long as people keep morning here, as long as we’ve got job growth, wage growth and population growth, we’re in a good place. People need groceries, they need services, they need banking, they need to go out to eat.”
What’s holding the market back is a lack of space, Taylor said.
“We’re at historic occupancy highs in DFW or close to it,” he said. “If you look at our construction pipeline of what’s supposed to be delivered, that number is shrinking.”
And high demand and low supply for space is causing rents to rise, Taylor added.
Increasing online shopping isn’t taking a toll on the North Texas’ bricks-and-mortar retailers, according to the report.
“There is a certain sliver of the pie that’s online, sure,” Taylor said. “But once you start unpacking that, how much of those dollars are being spent on retailers who are bricks-and-mortar retailers?”
Big box retailers, for example, are moving to online ordering, but still requiring customers to pick up their order in the store, he said.
“We’re still seeing people who want to go out to eat, want to buy groceries in the store, and I think that’s healthy for us,” he said.
On the big-box downside, Toys R Us in March filed a motion seeking bankruptcy court approval to begin liquidation of its 735 U.S and Puerto Rico stores. The closures are expected to occur within the first nine months of 2018.
In North Texas alone, the retailer is responsible for 15 locations, accounting for over 600,000 square feet of space.
The pace of absorption in big box space slowed in North Texas throughout 2017 and continues into this year. Similar to other major U.S. retail markets, there is an elevated supply in North Texas, at 935,145 square feet, the report says.