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Texas Retail Responds To Changes With Delivery Slowdown

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Texas has countered the demise of retailers nationwide and the rocket launch of online shopping with a slowdown in retail deliveries, a key to the market’s resilience over the last decade. 

Together, Austin, Dallas-Fort Worth, Houston and San Antonio completed 365M SF of new construction from 2000 to 2009, according to a CoStar report. However, since then, retail deliveries dropped to 91M SF for the four markets.

“This is a trend we will continue to see — slow-and-steady development because there was so much development before,” Transwestern Managing Director Nick Hernandez said. “It is a very conservative approach to development, which I think is good and healthy for the market.”

Each market reduced net completions by at least 55% per year this cycle: Austin led by decreasing 67%, Dallas-Fort Worth dropped 63%, Houston delivered 60% less and San Antonio reduced its pipeline 55%.

Austin's slowdown had other factors — governmental restrictions and zoning make it hard to build retail centers in Austin compared to other Texas metros, Hernandez said.  

Transwestern's Nick Hernandez with sons Jack and Hunter in Colorado summer 2015
Transwestern's Nick Hernandez with sons Jack and Hunter in Colorado in 2015

The downturn of retail deliveries throughout the state can be linked to companies being more alert to cannibalization and developers constructing fewer large, traditional malls and retail-anchored power centers, Hernandez said.  

Grocery stores, which continue to dominate the Texas retail market, are launching with less peripheral space, Weitzman Vice President of Communications Ian Pierce said. Instead of allocating 20K to 30K SF for adjacent concepts, developers are distributing 15K to 20K SF.

In the midst of the shift, retailers are concentrating on the in-store experience or experiential retail, providing shoppers an add-on not available online. Hernandez said this may not have an effect on how much is being built, but surely what is being built is different.

Texas Retail Responds To Changes With Delivery Slowdown
Weitzman Vice President of Communications Ian Pierce

The four metros are either near or above record-breaking occupancy levels, which can be related to a reduction in speculative development, an increase in pre-leasing before groundbreaking and the lack of new construction driving demand to the existing retail centers, he said. 

The CoStar report also noted a continued increase in population growth and buying power compared to 2000 through 2009. Since then, Texas' total population increased by about 20% compared to a 26% increase during the prior period.  

Buying power in the four Texas markers, calculated as the number of households multiplied by median household incomes in a given area, has also increased by more than 35% since 2010. 

Learn all about Texas' retail environment at Bisnow's Retail South event, 8:30 a.m.-6 p.m. Sept. 11 in Dallas.