Retail Supply and Demand Forecast

Employment: Dallas-Fort Worth employers are forecast to add over 81,000 positions, an increase of 3 percent, in 2005. Jobs in education, health services, leisure and hospitality, and government are driving improvement.

Construction: Developers will deliver almost 5.8 million square feet of retail to the Metroplex in 2005. Four Wal-Mart Supercenters and three Lowe’s Home Centers account for over 30 percent of the total square feet under construction. The pipeline of planned projects remains extensive with over 53 million square feet under consideration.

Vacancy: Despite increased development, vacancy is projected to dip 30 basis points in 2005 to 11.1 percent. Retailers are expanding to suburban areas of development where population growth has surpassed retail development.

Dallas-Fort Worth’s retail sales have returned to their usual healthy pattern, increasing 7 percent in 2004, bolstered by a rapidly expanding population. McKinney’s population expanded 47 percent over the past three years, the greatest increase in the country among cities with at least 50,000 residents. Strong population growth, coupled with an improving job market, has placed the Metroplex on the radar screen for retailers and investors once again. Wal-Mart, already the number one grocer in Dallas-Fort Worth with more than 25 percent market share, shows no signs of slowing down its local expansion plans. The majority of investment activity is focused in established commercial corridors such as Far North Dallas, Plano and Richardson.

Although difficult to find, opportunities might exist for older well-located strip centers in these areas. With area vacancy below 6 percent, rents for these assets have risen over 15 percent since 1999 compared to 10 percent regionwide. Cash-heavy investors might consider properties built in the late 1980s and early 1990s< in locations such as Garland or the Mid-Cities, where assets have appreciated at a fast rate but fixed highinterest debt has hindered owners’ ability to sell. Opportunities for higher cap rates and future repositioning might exist for investors willing to put a larger down payment on the acquisition of the asset and ride out the remainder of the existing financing with a reduced cash flow. Once the debt can be prepaid without penalty, returns can be improved through new debt and/or renovation.

Retail Investment Forecast

• Rent: The average asking rent regionwide is forecast to climb 2.4 percent in 2005 to $14.46 per square foot.
  
• Prices: Retail investment sales will remain strong through 2005. Investors seeking recently built properties or development opportunities should look to the expansion areas of Frisco, McKinney and Cedar Hill. For example, Cedar Hill is the second-fastest-growing retail construction market in North Texas, having doubled its retail space since 2002.