DALLAS — Six months ago, Neiman Marcus said its seven stores in Texas were outperforming the rest of the chain. Not any longer.
Now the Dallas-based luxury retailer with 40 full-line stores is reporting no regional differences as the $1.14 trillion Texan economy — about equal to India’s — feels the impact of frozen credit, cutbacks in jobs and consumer spending and falling home values.
“A broad-based weakening” slammed Texas, northern Louisiana and southern New Mexico in October and November, according to the Federal Reserve’s Beige Book report. The Fed cited sharp drops in manufacturing, hiring and sales of new homes in October and November. Retail sales softened, too, but they were still better than in other regions.
“When things started turning south, it didn’t impact Texas anywhere close to what everybody else saw, but it’s starting to come home,” said Alan Shor, president of The Retail Connection, a real estate consulting and development firm here. “You can’t run and hide from what’s happening because it’s so broad-based.…There is no doubt that retail sales are down for the most part in double digits, and the whole credit pipeline impacts Texas as much as anywhere else.”
Economists anticipate that the Lone Star State could be dragged down further this year by the nosedive in the price of oil, an industry that accounted for 15 percent of Texas’ economy in 2007, according to the state comptroller’s office. Analysts also expect layoffs at national and international firms with local operations, such as Dallas-based AT&T, and a decline in the state’s $168 billion export business.
Texas, with defense contracts valued at $39.5 billion in 2007, ranking second only to Virginia, also could be hurt by a potential contraction in that industry.
“The first part of ’09 is when we’re going to get walloped in Texas,” said Bernard Weinstein, director of the Center for Economic Development and Research at the University of North Texas. “Having said that, I don’t think it will be nearly as bad here as it is in other parts of the country.”
Plans for some mixed-use developments have been postponed: the $600 million River Oaks District in Houston with 350,000 square feet of retail; the $100 million-plus Regent Square in Houston, with 250,000 square feet of retail, and the $742 million GloryPark in Arlington, with 825,000 square feet of retail and entertainment. Simon Property Co. went ahead in the summer with expanding its Domain center in Austin by adding 600,000 square feet of retail, but the company delayed adding a strip of designer outlets to Grapevine Mills in suburban Dallas.
Other projects nearing completion may go begging for tenants.
The Village at Allen, a mixed-use center about 20 miles north of Dallas, will have 1 million square feet of retail and offices, a hotel and an event center when it’s complete in August. Seven of 11 big-box tenants have opened, including TJ Maxx and Men’s Wearhouse, while the hotel and event center are still under construction.
But there appears to be limited interest in smaller retail spaces that are ready for occupancy in the Village’s pedestrian-friendly blocks, according to the project’s Web site. A spokeswoman for developer MGHerring Group said officials weren’t available for comment.
MGHerring is building a sister property across the street that is to house Macy’s, Dillard’s and J.C. Penney, plus 500,000 square feet of specialty stores, a hotel, convention center, residences and offices. It also is scheduled to open in August.
At CityCentre, an upscale mixed-use development on the site of the old Town & Country mall in Houston, about half of the 400,000 square feet of retail space is leased, said Brad Freels, chairman and chief executive officer of Midway Companies, which built it. The opening is slated for September.
“We’re concerned, but not overly concerned,” Freels said. “I’m sure glad we’re in Houston — and not in Detroit.”
Developers who committed to speculative building will find it “very, very difficult to fill space that wasn’t pre-leased,” Shor observed. “Everybody has become more realistic.…Certainly in my career, no one remembers a time as difficult as this one.”
LFT, a 30,000-square-foot emporium of forward contemporary and designer fashion for men and women, fell victim to the sluggish economy and sparse traffic at Victory Park in Dallas. It began liquidating last month and was expected to close Jan. 4.
Much of the retail activity has turned to renegotiating leases or getting out of spaces, he noted. Landlords and tenants have become more flexible in their negotiations, recognizing it’s better if both survive.
Asking rates for retail space are flat, though landlords are giving more concessions in finish out and free rent, said Bob Young, managing director of brokerage services at The Weitzman Group, a real estate consulting firm.
As of the third quarter, retail occupancy was flat compared with the same period a year ago, at 89 percent in Dallas and 88 percent in Houston, despite an influx of new construction, Young said. The rate was 92 percent in Austin and 91 percent in San Antonio.
“Retailers will be keeping leaner inventories and focusing exactly on the target customer and assortments,” said Cheryl Bridges, director of the Center for Retailing Studies at Texas A&M University.
Brian Bolke, owner of Forty Five Ten in Dallas, sees his well-heeled customers evaluating purchases more carefully.
“Someone will buy a $2,000 pair of boots if they feel they can wear it, but they are not buying a $2,000 party dress if they feel they can just wear it once,” he said.
Texas’ economy has a far more diverse base than a few decades ago when the state’s fortunes rose and fell with the price of oil. Still best known for energy, petrochemicals and technology, Texas also is big in biomedical research, shipping, aerospace and agriculture, as well as defense. It steadily has been luring Fortune 500 companies and now claims more than any other state — 58 — including Exxon Mobil, which generated revenues of $372.82 billion last year, second only to Wal-Mart Stores Inc.
“Texas is one of the most attractive states in the country to be in business because of its low cost of living and low tax rates,” said Mark Dotzour, chief economist at the Real Estate Center at Texas A&M.
With a land mass bigger than California, Texas has an estimated population of 24.1 million that’s growing fast. It’s expected to swell by 10 million to 20 million residents by 2030, according to the state demographer’s office. The Dallas-Fort Worth metropolitan area added more residents last year than any region nationwide, for a total of 6.3 million people, according to the U.S. Census Bureau. Houston, Austin and San Antonio all ranked in the top 10 in population increase.
Business had been on an upswing most of the year, generating 221,000 jobs through November even as the nation suffered 1.9 million losses, according to the Texas Workforce Commission. But state unemployment edged up to 5.7 percent in October, compared with the nation’s 6.7 percent November jobless rate.
The pace of home foreclosures has been slower in Texas compared with states such as California and Florida because prices didn’t run up as much as those in other markets. But Dallas-Fort Worth had a record 50,000 foreclosures last year, up 17 percent from 2007, and metro Austin is up 27 percent, according to the Foreclosure Listing Service in Addison, Tex.
“The rates of foreclosure in Texas major metro areas are still nowhere near as high as other parts of the country,” said Jim Gaines, an economist specializing in housing at Texas A&M’s Real Estate Center.
The housing market has slackened because of the credit squeeze and falling demand, Gaines said. Sales slipped 14.7 percent statewide through October, and the median price was virtually unchanged at $142,300 versus $143,500 the year before. Gaines expects prices will be flat this year, adding that the market is “pretty balanced” in terms of inventory.
In the 13-county Dallas metropolitan area, home sales plummeted 33 percent in December, and the median price fell 7 percent — the biggest monthly decreases last year. Comparable figures for the state were not available.
Car sales in metro Dallas-Fort Worth plunged 39.8 percent in November — deeper than the nation’s 36.7 percent, according to the Dallas Morning News. October sales fell 18.3 percent, about half the national decline.
“We’ve seen a dramatic slowdown of economic activity of all sorts in this state, and yet at the same time our economy is more resilient,” said Dotzour of Texas A&M. “The thing that is of most concern to the Texas outlook is…the price of oil. Oil at $50 or $60 a barrel is still good, but if it drops to $20 or $30 we would see a pretty remarkable slowdown.”
Editor’s note: This is the second in an occasional series looking at regional economies.
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