'Great Retail Reset' Re-Energizes DFW Leasing And Occupancy
A survey of thousands of shopping centers across DFW unveiled Wednesday showed high levels of leasing and occupancy in 2021, indicating that brick-and-mortar retail is still relevant despite a massive shift toward e-commerce over the course of the pandemic.
Weitzman, one of the largest commercial real estate agencies in the Metroplex, said in its most recent year-end review and forecast that overall retail occupancy landed at 93.5% in 2021, the third-highest level in the 32 years the firm has conducted its survey.
“Demand for retail space in 2021 not only boosted occupancy, it almost completely reversed the huge increase in vacant space [created] by the pandemic in 2020,” Matthew Rosenfeld, Weitzman DFW executive vice president and director of brokerage, said during the firm’s annual forecast event on Wednesday.
Absorption also rebounded in 2021, with Weitzman reporting a 3.9M SF net increase in occupancy. This represents the third-strongest leasing market in 22 years, Rosenfeld said.
“This is a complete reversal from 2020 when pandemic-related closures resulted in vacancy jumping by more than 4M SF,” he said.
Concepts in high demand include restaurants, medical facilities, boutique fitness gyms, beauty and service-related businesses, Weitzman DFW Executive Vice President Michelle Caplan said. Vacancies created by large anchor tenants, such as Stein Mart and Pier 1, were quickly backfilled by other large-scale retailers, such as Sprouts Farmers Market, which plans to add four new stores to anchor spaces, she added.
All areas of retail saw improved occupancy over 2020, even more challenged categories, such as unanchored neighborhood centers, which account for close to 41M SF of retail in DFW and were 92.5% occupied at year’s end, Rosenfeld said.
The most successful retail category in 2021 was grocery stores, which reported a 2% annual increase in occupied space, ending the year at 94.1% occupancy. Retailers across DFW, led by groceries, leveraged technology to gain a competitive edge, Rosenfeld said.
“Grocery stores are the MVP of DFW retail, driving sales and traffic and leading the way in tech and mortar,” he said.
Tenants are rolling out new strategies, including drive-thru pickup windows for prepaid digital orders or sections of grocery stores dedicated to order fulfillment, to meet the evolving consumer needs brought on by the pandemic.
“At every level, retailers have access to more and more data that helps them understand what works and what doesn’t work with customer engagement,” Rosenfeld said. “This insight-driven approach is helping spur further innovation.”
One area for improvement is retail construction, which saw its worst year on record in 2021, Rosenfeld said. The market added 640K SF of new space, which is significantly less than the previous low total of 1.2M SF in 2012.
This is the first time in three decades that new construction has dropped below 1M SF, Rosenfeld said, and it is indicative of a decade-long, nationwide and statewide trend of anchor tenants either downsizing or not expanding. The rising cost of construction, redevelopment efforts and projects delayed during the pandemic also factor into the plunge, he said.
Based on what is in the pipeline, Weitzman predicts a rebound in new construction of about 2M SF in 2022. It also forecasts an increase in overall retail occupancy to 95% and absorption of 2.5M SF.
“The pandemic resulted in what’s being called the ‘Great Retail Reset,’” Caplan said. “The weakest chains closed. Chains that restructured through bankruptcy or closed money-losing locations now have stronger balance sheets, and retailers focused on innovations that created a better shopping experience. So our retailers are stronger, our market is stronger and our economy is stronger.”