As Retail Demand Rises, North Texas Needs A Way To Overcome Development Challenges
The coronavirus pandemic had a staggering impact on retail markets across the country. While e-commerce sales soared, foot traffic plummeted, with year-over-year foot traffic falling by 26% in March, followed by 45% in April and 30% in May, leaving many stores permanently shuttered.
But in North Texas, retail is undergoing a different kind of transformation.
“Texas set records for home starts for the sixth year in a row in 2020, and as the saying goes, retail follows rooftops,” said Clay Curtis, senior vice president at McRight-Smith Construction, a Texas-based construction management firm.
All of those new North Texas residents are driving demand for medical/dental services and personal services like daycare centers, dry cleaners, service stations, insurance agents, health clubs, nail salons and barbershops. But high costs for land, materials and labor mean retail developers need a plan and a careful hand to deliver new retail to the growing market.
Bisnow sat down with Curtis to learn more about retail’s growth in North Texas and how construction can meet new demand while helping developers navigate the complicated waters of the new market.
Bisnow: What are some of the main hurdles standing in the way of retail growth?
Curtis: The pandemic hit some already-hurting retailers very hard, forcing store closings and creating some leasing vacancy in the market. It has also created a major disruption to the supply chain, causing the cost of construction materials to rise much faster and much higher than what typical supply-demand cycles generate. In addition to cost, project delivery time pressures are also impacting the go-no-go decisions on projects, impacting the overall project viability for all parties. This interruption creates unreliability for both project schedules and budget requirements.
Along with increasing land prices, these extra costs have a negative effect on cap rates, leading many retail projects to be postponed or canceled.
Bisnow: What does this mean for the future of retail in the area as demand grows?
Curtis: Margins will continue to be squeezed. Project costs, factoring in labor, material and equipment, have continued to rise and it doesn’t look like the situation will improve in the next nine to 12 months. Add to that the fact that a lack of skilled labor across the area is expected to push construction wages up over the next year, and the road ahead looks tough.
Keeping capital in the game for this sector will be challenging. The key will be a more robust due diligence process and, of course, strict pro forma reviews. Despite all this, I’m confident the continued influx of new people in North Texas means deals will continue to be made.
Bisnow: How can construction firms help keep projects moving ahead despite these challenges?
Curtis: I believe the key is for retail developers to embrace a construction management approach. There is a bias that says, “construction management works on the large projects, but might not be cost-effective on smaller projects,” but while construction management services are customized differently depending on the project, the general philosophy can be applied to any asset class. And when you’re facing razor-thin margins, having a manager who can keep things running smoothly and facilitate each stage of the process to keep things on time and on budget can make all the difference.
McRight-Smith uses a construction management approach on mixed-use development, office buildings, retail spaces, educational facilities and industrial warehouses. We deliver an integrated solution that produces better schedule and budget reliability leading to a more profitable project for all parties.
Our construction management services provide owners, developers, tenants and the design-build team the very best method to effectively minimize cost, manage expectations, stay on track of timelines, improve communication throughout the process and deliver exactly what all parties need in the project and keeping the emphasis on the revenue-generating square footage.
Bisnow: How does your firm approach new projects?
Curtis: From the beginning, McRight-Smith works with the design team to discuss the specifics of a project, tenant needs, owner-developer budgets, project specifics such as site plans, floor plans, building elevations and other items pertinent to the project. Throughout all phases, our construction managers provide constructability and pricing reviews of the plans to ensure that the project remains within the overall budget that was identified at the outset. Ensuring there is a single group responsible for coordinating these different tasks, who are keeping an eye on the project budget, delivery schedule and design intent streamlines the overall communication and approval process.
This approach offers owners and developers a more direct line of communication with the construction team and provides a single point of contact to help facilitate discussions. At the same time, it minimizes the dreaded “scope creep” that is often seen when the client and development teams are not working together, which results in cost overruns that can put projects at risk. We believe this is exactly what North Texas needs to rebuild after the pandemic and start meeting new demand.
This article was produced in collaboration between McRight-Smith and Studio B. Bisnow news staff was not involved in the production of this content.
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