Net Demand for Retail Space Escalates to Record Levels in 1999’s 2nd Half
(January 18, 2000) – New retailers stormed into Dallas/Fort Worth at an unprecedented pace in 1999. Although the year got off to a slow start, a surge of grand openings in the 2nd half pushed demand to record levels in both multitenant centers and freestanding stores that are not part of a center.
Net leasing in multitenant shopping centers totaled 3.8 million square feet in 1999’s last half, bringing absorption during calendar 1999 to 4.8 million square feet. In addition, store openings in freestanding buildings totaled 2.5 million square feet in July-December and 3.5 million square feet for the calendar year. Total demand for retail space in 1999 climbed a whopping 53% from the 1998 level.
“Drive just about anywhere across metropolitan Dallas/Fort Worth and you’ll see a vibrant retail environment,” said M/PF Research president Ron Witten. “The area population base is growing rapidly, and these households are pouring retail dollars into the local economy. Retailers are responding to favorable market fundamentals with an array of new shopping options. Among the specific factors helping boost demand in the last half of 1999, the Kohl’s department store chain entered the D/FW market and absorbed large blocks of space. Also, compared to the retailer fall-out rate seen earlier, fewer failures occurred among existing businesses.”
Most of 1999’s demand registered in new properties built to serve growing neighborhoods. New supply in multitenant centers totaled 4.5 million square feet in 1999’s 2nd half and 5.7 million square feet for the year in sum. The new centers delivered in 1999 are already 82% full. Net growth in the base of existing space actually trailed the volume of completions by roughly one-fifth, since some older centers were demolished or converted to other uses.
D/FW shopping center occupancy finished 1999 at 89.3%, rising 0.7 points over the past year to finally breech the 89% mark. Previously, occupancy had hovered at 88% to 89% since early 1996.
Average base rents (excluding common area maintenance fees) for space in non-regional centers registered at $12.82 per square foot as of 4th quarter 1999. Rent growth was moderate at 2.7% over the past year. “With so much new space coming online, competition to land retailers appears to have capped rent growth potential,” said Witten. “Higher average rents in 1999 mainly reflected the premium prices of new space delivered to the marketplace, rather than rent increases at existing centers.”
Traditional demand leaders for shopping center space are the fast growing residential pockets of southern Collin County, southern Denton County and northeastern Tarrant County. Several neighborhoods in those areas performed well again during the last half of 1999. Far West Plano/Frisco absorbed a leading 767,100 square feet in about a half dozen new centers or sizable expansions to existing projects. Additions to Northeast Mall pushed demand in Hurst/Euless/Bedford to more than 600,000 square feet, while Allen/McKinney absorbed just over 300,000 square feet.
Significant demand also registered during the last half of 1999 in a few submarkets that were not particularly active previously. Far North Dallas made a strong comeback, experiencing demand for 546,400 square feet. That submarket had suffered two years of net move-outs in 1997-1998, when tenants left the Prestonwood Town Center regional mall. New supply in North Irving/Coppell boosted demand to 316,800 square feet, and West Fort Worth absorbed a solid 160,600 square feet as renovated space was reopened in Ridgmar Mall.