Quiet during downturn, Central Texas retail market now bouncing back

Gary Dinges & Shonda Novak |
Source: American-Statesman

After slumping during the recession, retail is making a comeback in Central Texas.


Ikea is expanding in Round Rock. Wal-Mart plans to build four new supercenters across the region. Costco will open a warehouse club in Cedar Park in 2013. Whole Foods is coming soon to Bee Cave, the Domain and Southwest Austin. And H-E-B will start work this year on two new stores, as well as continue to remodel and expand existing locations.

That’s just for starters.

Austin ranks as the strongest major retail market in Texas based on occupancy, according to the Weitzman Group, a commercial real estate brokerage firm.

Retail is expected to continue its “upward trajectory” due to steady leasing demand “at a time of extremely limited construction,” the company said in its most recent report on the Austin-area retail market.

“Austin’s retail market continues to benefit from an economy that, despite challenges, remains one of the healthiest in the country,” the report said.

Capitol Market Research, an Austin-based consulting firm that tracks the retail real estate market, reports that the occupancy rate was 90.6 percent at the end of 2011, up from 90.4 percent in 2010.

The Weitzman Group puts the current rate higher, at 93 percent at the end of 2011 compared with 92.5 percent in 2010. Weitzman tracks shopping centers with 25,000 square feet or more, while Capitol Market Research surveys centers as small as 10,000 square feet.

Capitol Market Research shows that the region’s occupancy peaked at 96.6 percent in 2000.

Chris Ellis, a co-founder and managing principal with Austin-based Endeavor Real Estate Group, the force behind nine projects that added 4.5 million square feet of retail space in Central Texas during the past decade, said 2012 will be “more of the same that we have seen in the past two years – retailers filling existing vacancies or, in limited cases, building new stores in centers that are still not completed.”

The exceptions, he said, will be H-E-B and Wal-Mart, which both plan to build new stores this year and in 2013.

“The biggest difference in 2012 is that more tenants will be in the market for space, but they will find it very difficult to locate since most all of the better spaces in the market have been leased,” Ellis said.

“Overall, Austin is very lucky, as we weathered the storm very, very well compared to most cities in the U.S.”

Prime real estate

Capital Plaza at Interstate 35 and U.S. 290 in Northeast Austin is among the region’s shopping centers that have benefited from the lack of new construction in recent years.

One of Austin’s oldest strip malls, it has seen an influx of new retailers recently, including Anna’s Linens, Champs Sports and, soon, Sheplers Western Wear, which is relocating from a spot near Highland Mall. These retailers join existing tenants such as Target, Ross and Walgreens.

Current occupancy is at more than 90 percent, according to Andrew Scroggie, senior vice president for the Weitzman Group, which handles leasing for Capital Plaza.

“Sales there have been very strong for decades,” Scroggie said. “It’s adjacent to a very dense residential area, and there are a number of offices nearby, too.”

Options for new construction in the area are limited, Scroggie said, making the center even more appealing to merchants looking to locate near downtown.

“It’s irreplaceable real estate,” he said. “There are so many barriers to any sort of new development in the area.”

In Northwest Austin, the Arboretum area is a hotbed of activity, Scroggie said. Great Hills Market and Great Hills Station, both at U.S. 183 and Great Hills Trail, are among the properties where the Weitzman Group handles leasing. A number of stores and restaurants are sniffing around for spaces, according to Scroggie, and three new tenants have recently inked letters of intent, clearing the way for them to join the retail mix.

“Sales in the area are phenomenal, especially for restaurants,” he said. “If you have a store in the Arboretum area, as well as others in the market, your best location in terms of sales will almost always be the Arboretum location.”

New construction

When Wal-Mart announced its new stores in December, Ellis, Endeavor’s co-founder, said the nation’s largest retailer was being “a shrewd operator” by taking advantage of scarce competition from large­format retailers for future sites and “getting out in front of the growth” in the areas where it plans stores.

Construction is due to start this summer on the Elgin store, with a projected opening in summer 2013. Wal-Mart plans to start building in Manor this fall, aiming to open in fall 2013.

Jill Rowe, a veteran retail broker and vice president of commercial business development at Chicago Title Austin, said that although 2012 will see limited new development, it will be a year when developers start planning for major new retail construction.

“New construction will begin to trend upward, driven by demand from anchor tenants,” Rowe said.

“However, it will be nowhere near the velocity we had in 2008 and prior.”

At a real estate forecast event in January 2005, Rowe accurately calculated that Central Texas would add more than 10 million square feet of retail space in 2005, 2006 and 2007 – roughly equating to 10 new shopping malls.

Included in that estimate were the future Domain and nearby Shops at Arbor Walk, which together totaled 1.4 million square feet.

This year, Rowe said she thinks it’s possible that more than 500,000 square feet – and possibly up to 1 million square feet – of retail space will be added in projects both under construction and scheduled to start this year.

However, next year, she thinks “significantly over 1 million square feet” will be added to the market.

“I think 2013 is going to be a pretty strong year,” said Rowe, formerly president of Rowe Investments, an Austin-based retail investment and brokerage firm.

One of the largest projects under construction is Lakeline Market, a 250,000-square-foot shopping center slated for 40 acres at the southwest corner of Lakeline Boulevard and U.S. 183. The developer is Barshop & Oles. H-E-B will be one of the anchors and is projected to open in mid-November, according to Milo Burdette, vice president of development with Barshop & Oles.

Other tenants are expected to be announced soon, he said.

Burdette said the past three to four years “have been pretty difficult for retail,” as many of the stores that drove expansion in the market for some time, including Wal-Mart, Lowe’s and Home Depot, retrenched.

That’s starting to change.

Burdette said 2012 will be a better year for retail.

“The trend for retail sales in Austin and surrounding areas is positive,” he said. “We’re seeing an increase in retail sales, and that’s the basis for all retail expansion.”

Jeff Townsend, a principal in the Austin office of Edge Realty Partners, a retail brokerage and development company, said retail in Central Texas is “coming back to life.”

With limited new retail construction, “the trend is definitely filling existing space and vacancies,” which in turn will mean occupancy rates will continue to rise, Townsend said.

He said that although restaurants have consistently been expanding, even during the recession, “we’re now seeing some of the national apparel stores and shop space users who have been quiet for the last three years looking for locations.”

Those retailers include Dress Barn, Maurices and newcomer Five Below, a store where all items are $5 or less.

Austin generally has outperformed the nation on the retail front and “had solid footing throughout the recession,” Townsend said.

Now, with the national economy showing signs of picking up, financing more available and retail sales growing, “it’s unleashing more activity in the markets, and Austin is at the top of the list,” he said.

“Our biggest concern is we need more space to lease and shopping centers being built to keep pace,” Townsend said.

It could be 2013 or even 2014 before new development starts to catch up with demand, Townsend said.

Shonda Novak: 445-3856
Gary Dinges: 912-5987