Dallas-Fort Worth and Austin Retail Market Report

Dallas-Fort Worth

Market Overview

The retail market in Dallas-Fort Worth (DFW) has experienced a sustained and revived demand over the past two years, significantly decreasing availability rates. These rates have reached record lows as the share of space available for lease has dwindled, primarily due to consistent demand and limited supply. The redevelopment of malls is significantly impacting the DFW area. In recent years, several abandoned shopping malls in the metroplex, such as Red Bird Mall and Collin Creek Mall, have been demolished to make room for ambitious mixed-use developments. This trend of demolitions has gained momentum, resulting in the removal of approximately 2.5 million square feet of space over the past two years. These redevelopment projects, along with others, are contributing to the process of rightsizing the market.

Highlights

• Thanks to the structural economic and demographic tailwinds, the outlook for the DFW retail market remains bright.
• In areas such as North Dallas, Uptown, Frisco, and Southlake, the average rental rates range from $30/SF to $45/SF.
• Denton and Collin Counties collectively comprise approximately 65% of the retail space currently under construction, while Dallas County represents 15% of the total.
• Currently, there are 4.8 million SF of projects underway, with a substantial 66% of the space already pre-leased.

Rents | Vacancy | Construction

The metro area has achieved annual rent growth of over three percent for the past five years, consistently outperforming the national average.

Rent growth in the DFW area has exceeded expectations and currently stands at four percent. The combination of consistent demand and a decreasing supply of available space is driving rents higher. Neighborhood centers, strip centers, and similar properties have played a significant role in sustaining this growth in the market. In the last two years, leasing activity in DFW has remained steady. This performance has positioned the market as the frontrunner nationwide in terms of net absorption. Consequently, vacancy and availability rates in the market are currently tracking close to, or even below, the levels seen prior to COVID-19.

Developers in Dallas-Fort Worth are exhibiting caution in their expansion efforts, as they are adding new retail space at a measured rate. Despite the metroplex being recognized as one of the leading markets for retail construction in terms of square footage, the amount of space currently under development represents less than one percent of the total inventory. Last year, developers initiated the construction of 3.6 million square feet, which is the lowest level observed since 2011.

Sales

Dallas-Fort Worth, By the Numbers in the Past 12 Months

• Sales Volume: $661M
• Vacancy Rate: 4.5%
• Rent Growth: 4.0%
• Market Rent/SF: $23
• SF Under Construction: 4,803,582

Despite volatile economic conditions, several investors remain interested in shopping centers located in desirable DFW suburban areas.

Over the past two years, deal volume in DFW has been trending upward, reaching an estimated value of $6 billion in 2022. Investors continue to show a strong interest in shopping centers anchored by essential retailers such as grocery stores, hardware stores, and discount retailers. The 12-month sales volume for the DFW retail market is $661 million.

Austin

Market Overview

The Austin retail market continues to experience favorable conditions and is surpassing national trends. The rapid expansion of suburban areas and a strong job market have motivated retailers to expand their presence in the city. Austin’s population has grown by 1.8 percent in the past year, making it the fastest-growing city in the country, with over two million residents. Additionally, Austin has seen a 5.2 percent annual growth in total employment, the second-highest among major metropolitan areas. However, the limited availability of suitable retail space has recently hindered retailers’ ability to secure new leases, resulting in a slowdown in leasing activity during Q1 2023. Last year, developers initiated the construction of 3.6 million square feet, which is the lowest level observed since 2011.

Highlights

• Due to the record low availability rate of 3.8%, finding retail space in Austin has become challenging.
• The majority of new leasing volume in Austin has been observed in the fast-growing suburban markets, with Georgetown and Hays County taking the lead in terms of year-to-date activity.
• The outskirts of Austin, specifically Caldwell, Bastrop, and Georgetown offer some of the most affordable market rents in the area. Rental rates in these far-flung suburbs are recorded at $14 per square foot in Caldwell, $23 per square foot in Bastrop, and $25 per square foot in Georgetown.

Rents | Vacancy | Construction

Austin ranks third in terms of inventory share, with 1.3% of positive yearly net absorption, trailing only San Antonio and Phoenix.

Due to positive population and employment growth, as well as a remarkably low vacancy rate of 2.9 percent, Austin has experienced a robust annual rent growth rate of 7.2 percent. Moving forward, demand is anticipated to be robust. This demand is expected to result in a stable vacancy rate in the upcoming quarters, allowing landlords to maintain their pricing power.

Construction activity in Austin experienced a significant increase in the past year, reaching one of its highest levels since Q4 2007. A total of 2.8 million square feet of construction was recorded during the last 12 months, marking a 70 percent increase. In terms of market size, Austin now stands as the most active market among the 50 largest retail markets in the U.S., with 2.4 percent of its inventory currently under construction. The growth in construction was primarily driven by a strong start in Q1 2023, where construction activity surpassed one million square feet, the highest quarterly total since Q3 2007. Developers have responded to the city’s remarkable population growth, particularly in rapidly expanding suburban areas like Georgetown, Manor, and Kyle.

Sales

Austin, By the Numbers in the Past 12 Months

• Sales Volume: $228M
• Vacancy Rate: 2.9%
• Rent Growth: 7.2%
• Market Rent/SF: $30
• SF Under Construction: 2,835,849

Despite rising interest rates that deterred some sellers from participating in the market, institutional investors remained active due to Austin’s high occupancy rates and strong annual rent growth. The 12-month sales volume is currently $228 million and is expected to moderate for the remainder of the year.