Area report shows widespread weakness, some strength

The latest Dallas-Fort Worth retail market report shows widespread weakness mixed with pockets of strength in some out-performing areas with mid-level submarkets bearing much of the brunt of the downturn, according to the third quarter Retail Research Report just released by Marcus & Millichap Real Estate Investment Services.

“The retail investment climate will remain largely divided between single- and multi-tenant through the end of the year,” said Tim Speck, regional manager of the Dallas office of Marcus & Millichap.

According to the report, a slowdown in leasing activity and continued construction is setting the local retail stage for a 150-point bump in vacancy for the year, to 12.9 percent. In 2008, vacancy ticked up 20 basis points. Meanwhile the drop in retail sales and the jump in available space “will weigh on rents,” the report states.

Asking rents are projected to finish 2009 at $15.67 per square foot in Dallas-Fort Worth while effective rents slip to $13.69 per square foot, respective losses of .9 percent and 3 percent.

Of the different retail sectors locally, the Marcus and Millichap report identified low-rent areas as ones set to outperform in terms of rents and occupancy.

“While some tenants in the segment have gone dark, many stores in these submarkets have been able to overcome the drop in retail sales due to lower overhead obligations,” the report stated. “In addition, some retailers are moving into less expensive space to sustain operations through the recession.”

During the past year, the five most expensive submarkets in the Metroplex have cut effective rents by an average of 1.5 percent, which is 50 basis points more than the area’s average.

Northwest Fort Worth ranked No. 4 among the area’s retail sub-markets with a below average 10.4 percent vacancy rating and effective rents of $13.00 while Arlington ranked No. 8 with vacancy at 11.9 percent and effective rents of $12.26. The Northeast Fort Worth submarket, ranked No. 12, reported a 13 percent vacancy rating with effective rents at $15.62.

Construction

Development activity continued at a brisk pace during the first half of 2009 as builders added 3.6 million square feet of retail space, representing a 1.5 percent increase to stock. In Tarrant County, 1.6 million square feet is currently under way, and an additional 5.8 million square feet is proposed.

Though construction growth is still strong, it is down

significantly from the highs of 2008. By year’s end, the report stated, developers are forecast to add 5.5 million square feet of space in Dallas-Fort Worth, down from 7.8 million square feet in 2008.

Vacancy

One of the harder hit areas in the local retail market has been neighborhood and community centers, which saw vacancy rates climb 190 basis points during the last year to 13.5 percent on average. The report noted healthier than average job market conditions in Tarrant County, which limited the rise in neighborhood and community center vacancies to only 120 basis points during the same period.

Rents

During the past year, asking rents have risen 0.1 percent to $15.74 per square foot in the Dallas-Fort Worth area, which effective rents are down 1 percent at $13.75 per square foot. According to the report, Fort Worth retail owners reduced effective rents 2.3 percent in the first half of 2009 to “aid in tenant retention.”

And though concessions are more widely used in the Dallas portion of the Metroplex, the report stated, operators in Fort Worth “have been more aggressive in offering greater leasing incentives during the past year.”

In Tarrant County, effective rents were 89.1 percent of asking rents for the quarter, down from 90.1 percent of asking rents in the same period a year ago.

In the coming months, the report stated the retail investment climate will remain largely divided between the two product types and listings with quality anchor tenants will “remain attractive to investors due to the relative easy of re-tenanting dark, in-line space. Owners of unanchored centers, however, will face extended list times unless

long-term commitments from viable companies are in place.”