The fastest-growing U.S. metropolitan region continues an aggressive retail, fashion and economic expansion that so far has not been battered by recession, slowdown or becoming overstored.
It’s not quite a walk in the park, however, as funding for new retail projects is becoming harder to land, owing to the national credit and lending crunch. This has resulted in a delicate balancing act for lenders, developers, retail tenants and, ultimately, price-savvy consumers.
Before granting large lines of credit, many lenders now demand extensive pre-leasing and marketing proof that a project has retailer as well as consumer drawing power and isn’t likely to fail.
Glorypark, a $500 million lifestyle and retail project planned in Arlington, near the new Dallas Cowboys stadium under construction, was put on hold in May due to lack of financing and developers’ inability to get firm pre-leasing commitments from potential anchor tenants.
“We’re in the most difficult credit crunch that I’ve seen in the last 20 years,” said Glorypark co-developer Tom Hicks, who also owns the Texas Rangers baseball team and Dallas Stars hockey team.
The Glorypark abeyance followed the May announcement that developer Ross Perot Jr.’s Hillwood development company had put a hold on construction of the 43-story Mandarin Oriental hotel and condominium tower in the Victory mixed-use neighborhood near downtown Dallas.
Perot cited volatile financial markets as a major factor in the decision on the Victory development, where Tom Hicks is also a partner.
Despite retrenchment on some high-profile projects, many developers, armed with firm pre-leasing commitments, are upbeat and willing to go forward with at least the first phases of projects.
Tanger Outlets of Greensboro, N.C., revealed plans in March to build an upscale outlet shopping center in Irving, its third in the state. In Irving, the new 380,000-square-foot Tanger center plans to capture what it calls an underserved market: consumers who seek and enjoy shopping at designer outlet malls.
“We feel that Dallas-Fort Worth metro is growing rapidly and has a very sophisticated customer base that craves designer fashion but is also looking for value. We think it’s an excellent market for us. In Irving, we’re going to be located next to Texas Stadium, now home to the Dallas Cowboys, but that will be vacant next year when the Cowboys move to their new stadium in Arlington. The city of Irving has plans to dramatically revitalize the area with new and exciting shops,” said Steven B. Tanger, president and chief operating officer of Tanger Factory Outlet Centers Inc.
Dallas offers more shopping and retail venues per capita than any U.S. city, according to the City of Dallas, which claims 26 square feet of retail space for each person in the metropolitan area, compared with the national average of 14 square feet per person.
Much of the new Dallas-area retail construction is in open-air lifestyle shopping districts, featuring upscale housing, hotels, entertainment and office space. Freestanding stores in power centers — often in suburban areas that are understored — also are rising in popularity.
According to figures released July 9 by the Federal Reserve Bank of Dallas, the city’s economy continues to grow, thanks to its highly diversified and growing economic infrastructure and job growth, with the biggest industries in the Dallas area including energy, retail, manufacturing, high-tech, health services, education and banking.
The Dallas Fed reported employment growth in May 2008 rose 2.1 percent with employers adding 3,700 jobs.
The ubiquitous construction cranes crowding the area attest that developers are racing to complete 20 million square feet of retail space to open from 2010 to 2012 — despite the economic malaise affecting the country.
New shopping and mixed-use venues in the metroplex are typically in higher-income neighborhoods and suburbs, in some instances with median household incomes over $100,000.
In May, UDR Inc., a Denver-based retail, lifestyle and commercial development company, broke ground on Vitruvian Park, a $1 billion multifamily, retail and commercial project in the Dallas suburb of Addison. Set on 99 acres, Vitruvian Park will have more than 300,000 square feet of retail and office space and is one of the biggest redevelopment projects in the area.
The first phase of Vitruvian Park is slated to open in 2010, with completion of all phases expected by 2017.
The DFW area boasts a median household income of $54,778, compared with $46,448 for Texas and $49,256 for the U.S. The metro area’s current population of 6.1 million is projected to grow 9.7 percent from 2007 to 2012.
Developers are snatching huge parcels of land in mostly underdeveloped rural towns on the fringes of Dallas, which are growing at a seemingly exponential rate due to families and corporations relocating in search of less costly living.
Several new mixed-use projects are located 20 to 30 miles north of Dallas in once-sleepy farming towns like Murphy, Frisco, Fairview, Melissa, Princeton and Prosper being transformed with upscale shopping plazas.
Still, some real estate brokers don’t foresee overstoring or a space glut, citing the area’s diverse and growing industries, low cost of living, inexpensive housing, a continual flow of new residents, a young population and new corporations relocating to Dallas, like ATT, which is moving its headquarters from San Antonio.
Developers and retailers already have added about 1.7 million square feet of shops in 2008, equal to the square footage of a single large regional shopping mall, according to The Weitzman Group, a Dallas-based real estate advisement and brokerage firm.
Weitzman projects that in 2008 some 4.2 million square feet of retail space will open in the DFW area. In comparison, last year developers added 3.8 million square feet of space.
“The 2008 construction has been kept in check due to the fact that these regional projects are opening in phases, instead of all at once,” said Herb Weitzman, the firm’s founder.
“Thanks to the Dallas area’s broad-based economy, I really don’t think the city is or will become overstored and I think we’ll avoid the recession. Our leasing is up over last year. But we’re not immune to overstoring, either. We’re seeing some retrenchment from lenders who have backed away from offering large amounts of credit and requiring now more equity, more due diligence and more pre-leasing — money is not as loose as it used to be,” affirmed Weitzman.
Other real estate brokers disagree, believing Dallas is poised for a huge retail space glut. “Potential concern for the [Dallas] retail market is that the number of retail projects currently under construction may result in a saturation of new space. Currently there are nearly 12.8 million square feet of retail space in the construction pipeline; this is up from last year, when approximately 11.7 million square feet was under way. Time will tell if demand will be able to keep up with the expected deliveries,” reported real estate brokerage firm CB Richard Ellis.
“North Texas is better positioned than any other region of the country to ride out the recession of 2008,” said Bernard L. Weinstein, professor of applied economics and director of the Center for Economic Development and Research at the University of North Texas, Denton. “Importantly, the basic industries in north Texas remain healthy. Defense-related manufacturing continues to expand. The information technology sector has rebounded strongly from the ‘tech wreck’ earlier in the decade. DFW’s role as a major logistics center continues to increase in tandem with growing global exports from Texas.
“The Dallas retail market will continue to do reasonably well compared [with] the rest of the U.S. We’re still creating jobs here, our employment base continues to grow and we’re seeing a high level of household formation. Many experts have said that the Dallas-Fort Worth metro region will continue to be the fastest- growing major metro market for the next 30 years. I agree with that assessment. I think we’ll avoid the recession but we’ll see a slight slowing and will continue to outperform the rest of the country.”�
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