Market Data

Southern Bellwether

Retail remains the darling of the region's real estate markets.

By Carolyn Bilsky |

T he South Central region has seen most commercial real estate sectors struggle toward recovery, although retail has remained strong. In Texas, Dallas-Fort Worth, Austin, and Houston showed retail growth mirroring each city’s residential increases, according to NAI’s 2005 Global Market Report. Other cities experiencing low vacancies and high rents are Baton Rouge, La., New Orleans, and Little Rock, Ark.

In the office sector, San Antonio has experienced a downturn, but Dallas-Fort Worth saw more corporate relocations and expansions than any other U.S. city, according to a study from Conway New Plant Database and Site Selection magazine. Corporations relocating to or expanding in northern Texas include Del Monte Foods, Home Depot, and Washington Mutual. In New Orleans, the suburban Metairie, La., office market continues to outshine the central business district with almost 90 percent occupancy. In Tucson, Ariz., a shift from leasing to purchasing pervades, and occupancy is up.

In the industrial sector, Texarkana, Texas, had the region’s lowest industrial flex space vacancy and highest flex space rent at $16 psf. New Orleans has been experiencing stable but low industrial demand and saw no new construction over the past year, according to NAI. Phoenix’s industrial vacancy continues to top 11 percent, but a positive business climate is attracting California investors to the area.

In Oklahoma City, multifamily sales broke records last year, and transaction volume will be high again this year, according to OKCBusiness. In Houston, multifamily construction has slowed in concert with population growth, but the market continues to be strong. In Phoenix’s surrounding suburbs of Tempe, Chandler, and Peoria, Ariz., multifamily sales increased.

In the hospitality sector, tourism is expected to increase with development. In Dallas, for example, as existing projects are completed and a more cohesive downtown area is developed, further construction in the sector is expected, according to Ernst & Young’s 2005 National Lodging Report.

CCIM Market Snapshot

“As a Sun Belt city, Tucson’s population growth fuels the construction of new homes and commercial buildings. The commercial real estate sector is thriving because Tucson is growing. The challenge is to accommodate the growth while maintaining our identity as a great little city.”

—George C. Larsen, CCIM, principal of Larsen Baker LLC, Tucson, Ariz.

Little Rock, Ark.
Library Leads to Downtown Growth
Little Rock’s central business district continues to expand, encouraged in no small part by the opening of the William J. Clinton Presidential Center. The $160 million complex helped make the River Market District Little Rock’s fastest-growing area. The library spurred nearly $7 billion in new retail, residential, office, and hospitality developments.

Source: NAI Dan Robinson & Associates

photo: Little Rock Convention & Visitors Bureau

Texas
Urban Retail Revival
Several large retail markets showed strong improvements throughout 2004, including:
Austin
At year-end, the city had the highest retail occupancy, 95.5 percent, of any Texas market. This is an improvement over year-end 2003’s 95 percent occupancy rate. New retail construction also increased throughout the Austin area adding about 1.5 million sf.

Dallas-Fort Worth
In 2004 the market’s total retail inventory exceeded 150 million sf for the first time and the retail occupancy rate exceeded 90 percent for the second time in 15 years. An overall improving economy allowed for an increase in construction as well. A total of 4.4 million sf of new retail product was added to the market last year.

Houston
Strong retail demand throughout last year led to Houston’s highest occupancy levels in a decade. The year-end occupancy rate was 86.9 percent, up one-and-a-half percentage points from the previous year. Mall expansions, new Wal-Mart Supercenters, and HEB grocery-anchored community centers were all part of the city’s active new construction market.

San Antonio
San Antonio’s growing economy shows promise for continued retail property demand. Nearly 15,000 new jobs were added in 2004, and job growth is expected to continue throughout this year.

Source: Weitzman Group and Cencor Realty Services

photo caption: Uptown Park Shopping Center
photo: Greater Houston CVB

Albuquerque, N.M.
Industrial Shifts
• The closing of the 500,000-sf Philips Semiconductor plant skewed the city’s industrial absorption rate to a negative 29,500 sf.
• 665,000 sf of new construction projects were completed in 2004. Owner-occupied and build-to-suit projects accounted for 410,000 sf of absorption.
• An excess of for-lease space has swayed the market in tenants’ favor. But current conditions may not last long — rising interest rates and construction costs may give landlords the advantage.

Source: Grubb & Ellis

Scottsdale, Ariz.
Mixed-Use Development Breaks Ground
Featuring 410,000 sf of luxury condominiums and 200,000 sf of retail, restaurant, and office space, the Scottsdale Waterfront Residences began construction in January. Just north of downtown Scottsdale and along the Arizona Canal, the development will consist of two 13-story towers with 198 residential units, as well as restaurants and retailers. The development also will house the Fiesta Bowl headquarters and museum and will feature approximately five acres of outdoor public space, including an amphitheater, public art, and recreation paths. The $200 million project’s first tower is slated for completion in 4Q06, and the second tower will be completed in 1Q07.

photo: H & S International

New Orleans
Office Market Blues
The New Orleans office market slowly is recovering from an abundance of sublease space, but two factors will test the strength of the market’s impending recovery: Much of the sublease office space may come back on the market due to expiring lease terms and several office properties occupied by oil companies have leases expiring this year and in 2006. Leasing decisions will have big implications on the city’s future office market fundamentals.

In addition, class A office space will continue to see relatively flat rental rates with unchanged tenant concessions this year, according to Brian Rourke, CCIM, SIOR, an office leasing broker with NAI/Latter & Blum in New Orleans. Approximately 200,000 sf of class B office space was added to the market during 1Q05 and large amounts of class C space have been redeveloped into multifamily.

Frisco, Texas
Hospitality Heats Up
Located 20 miles north of Dallas with a strong local economy, Frisco, Texas, was an ideal place for John Q. Hammons to build a $40 million, 330-room Embassy Suites Hotel. Frisco welcomes around 2 million visitors per year, according to Hospitality Net. The Frisco Sports/Entertainment complex, adjacent to the hotel, includes the $22 million Dr. Pepper/7UP Ballpark, where the AA Frisco RoughRiders play, as well as the training headquarters for the Dallas Stars National Hockey League team. Retail is also one of Frisco’s draws. The 1.6 million-sf Stonebriar Center and the 1.1 million-sf Centre at Preston Ridge accompany the local area’s more than 200 restaurants.

Oklahoma City
Multifamily Roundup
This year will be a good one for Oklahoma City’s multifamily market, according to a recent National Association of Home Builders study. General economic growth will lead to increased demand for multifamily housing with the largest jump predicted for class B properties. Due to increased demand, the average vacancy rate has dropped to 7.8 percent. With developments in the pipeline and some already underway, supply is on the rise.
Source: NewsOK.com

photo: Oklahmoa City Convention and Visitors Bureau