Q2 2012 Dallas, Texas Retail Submarket Trends

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Q2 2012 Dallas, Texas Retail Submarket Trends

Allen/Frisco/McKinney

  • Over the years, north suburban Dallas—from Far North Dallas to the greater Plano-Richardson-Allen-McKinney-Frisco area in Collin and Denton counties—has been a hotbed of growth and development. While activity has slowed in the recent term, three substantial retail projects were under development per the date of this report, as described below, and large volumes of space remain in the planning-proposal pipeline.
  • More. Pending residential development in north suburban locales, including McKinney, The Colony, and Prosper, bears watching for its potential effects on the development of retail real estate.
  • Rosebriar Properties’ 355,000-square-foot Prosper Plaza power center is scheduled to complete in September in Prosper. A 207,000-square-foot Walmart Supercenter is located at an adjacent site. Construction began in April 2008 before the stalled project was acquired by the current developer.
  • A large land deal. Terra Verde Group has acquired 2,031 acres in Prosper from Forest City Enterprises Inc. for $29.8 million, the Dallas Business Journal reported in June. “The large land tract is slated for the massive Three Stones master-planned community development, which includes 3,090 single-family homes, 600 apartment units, 250 acres of commercial or retail use, and more than 600 acres of parks and open spaces.”
  • The 245,000-square-foot Hickory Center at Preston community center is scheduled to complete this August at 8555 Preston Road, Frisco. Construction began in November 2010.
  • Also in Frisco, the 300,000-square-foot Frisco Trails Shopping Center power center is under construction at Eldorado Parkway and the Dallas North Tollway. A May 2013 completion date is cited. Cencor Realty Services is the developer. A 148,000-square-foot Costco, which opened in October 2011, and a Home Depot anchor the project.
  • The 63,800-square-foot Independence Crossing neighborhood center is under construction in Plano. A completion date has not been specified.
  • Reis reports 2.9 million square feet in planning or proposal stages in 12 projects in Allen/Frisco/McKinney as of July 30.
  • Prominent among these is the three-phase Frisco Market Center lifestyle center from Hermansen Land Development, intended for a site at the Dallas North Tollway and Main Street, Frisco. Reis reports a combined total of 1 million square feet in planning and proposal stages. A development cost estimate in excess of $100 million has been reported. Proposed for the same interchange is the Frisco Commons power center, reported by Reis at 500,000 square feet.
  • Bankrupt. Behringer Harvard has filed for Chapter 11 bankruptcy protection on its Frisco Square development. The firm was unable to restructure its debt on the property, the Dallas Business Journal reported in June. The project includes 65,000 square feet of retail space, along with office and residential components.
  • Total first half 2012 community-neighborhood sector net absorption in the Allen/Frisco/McKinney submarket was 32,000 square feet. The second-quarter total was minus 1,000 square feet.
  • After peaking at 12.7% in third quarter 2010, vacancy headed downward. It closed the latest quarter at 9.7%, up 10 basis points for the period, down 240 year-over-year.
  • The quarter-end non-anchor sector rate was 16.0%, well above the anchor sector’s 1.7%.
  • Overall average asking and effective rents closed the quarter at $21.56 psf and $18.68 psf, down 0.5% and 0.4% for the period.
  • Outlook. Reis expects a surge in net absorption over the remainder of the year—an effect of the delivery of 245,000 square feet of new supply, as described—to result in a 2012 total of 256,000 square feet and a relatively balanced market for the year as a whole. Vacancy will shed 10 basis points by the end of the year. While rent growth will be minimally negative overall, modest gains are expected for the second half. The large volume of space in the pipeline bears watching.

Plano and Vicinity

  • Current construction in the Plano submarket consists solely of the 650,000-square-foot Woodbridge Crossing regional center at FM 544 and McCreary Road in Wylie. After an October 2008 groundbreaking, completion is scheduled for October 2013. Direct Development is the developer. The actual under-construction total at this project is smaller: a 185,000-square-foot SuperTarget anchor opened in 2009, and a 64,000-square-foot Kohl’s opened in 2011.
  • Community-neighborhood sector net absorption for the first half of 2012 in the Plano submarket, alongside no new supply, was positive 66,000 square feet.
  • Second-quarter vacancy was 14.6%, down 10 basis points for the quarter, same as a year earlier.
  • Anchor and non-anchor community-neighborhood sector vacancies for second quarter were 10.7% and 17.3%.
  • At $17.69 psf and $15.44 psf, overall asking and effective average rents for second quarter were up 0.2% and 0.3% for the period and were up 0.3% and 0.4% since year-end, following gains at about 0.5% last year.
  • Outlook. A decline to 13.9% is expected for the community-neighborhood sector vacancy rate by the end of the year amid ongoing positive net absorption and no new supply deliveries. Growth at 0.7% is projected for both average rents for the year.

Northwest: Carrollton/Southeast Denton

  • While most of its new projects remain in the planning-proposal pipeline, Denton, located to the west of the Allen/Frisco/McKinney submarket, has captured considerable developer interest. Several recently announced projects are described below.
  • Two small neighborhood centers with a combined total of 72,100 square feet completed construction all told last year, in Carrollton and Westlake.
  • At the 400-acre Rayzor Ranch mixed-use development at I-35 and Highway 380 in Denton, a total of 1.9 million square feet of retail space is under way or planned in three projects, as described below. Developer RED Development describes Rayzor Ranch as “the largest super-regional development between Dallas and Oklahoma City.”
  • At the Rayzor Ranch Town Center, 836,900 square feet of regional center space is under way without a specified completion date.
  • The 838,700-square-foot Rayzor Ranch Marketplace power center is planned. A start date is not specified. Sam’s Club and Walmart Supercenter have come aboard as anchors.
  • Also planned for Rayzor Ranch is 242,750 square feet of “street retail” in a mixed-use project.
  • Village on the Parkway redevelopment. An April start of pre-construction demolition for this 30-acre shopping center in Addison was reported by the Dallas Morning News at the time. The city approved a $21.4 million incentive package earlier in the year.
  • More. The Retail Connection and developer Lincoln Property, in partnership with investor Long Wharf Real Estate Partners, bought Village on the Parkway last year. The project will host a Whole Foods market.
  • Developer Hillwood Communities and Realty Capital Management have entered into a joint venture to develop Belmont, a $1 billion, 1,000-acre mixed-use project along I-35W in Argyle and Northlake (Denton County), according to the Dallas Business Journal. “Horizontal” construction is scheduled to begin in summer 2012. The project was initially announced in 2005. Plans include 130 acres of mixed-use development, including retail space, restaurants, and office buildings. The master-planned Belmont development was described earlier this year as “Hillwood’s largest residential land investment in the Dallas-Fort Worth area in the last four years.”
  • Excluding Rayzor Ranch, Reis reports 3.7 million square feet in projects in planning and proposal phases in its Carrollton/Southeast Denton submarket.
  • Projects in planning include the 515,000-square-foot Frisco Crossing power center at Highway 380 and FM 423, in an area of Frisco located within this submarket.
  • First half 2012 community-neighborhood sector net absorption for Carrollton/Southeast Denton, alongside no new supply, was 30,000 square feet. The second-quarter total was negative 30,000 square feet.
  • At 18.2%, second-quarter vacancy was up 50 basis points for the period and was down 10 since the second quarter of 2011.
  • Quarter-end anchor and non-anchor community-neighborhood sector vacancies were far apart at 14.4% and 21.0%.
  • Second-quarter overall asking and effective average lease rates were $15.40 psf and $13.42 psf, up 0.5% and 0.4% for the period, up 0.6% and 0.4% year-over-year.
  • Outlook. A small positive net absorption total over the remainder of the year, alongside no new supply, should result in a 30 basis point vacancy rate reduction by year’s close. Gains of about 0.5% are projected for average rents for the year.

Dallas: Highlands

  • The 4.5-million-square-foot Highlands submarket, which stretches northeast of the central city as far as the LBJ Freeway (I-635), boasts 2011’s largest completion, Trammell Crow Company’s 479,600-square-foot, 100% leased Timber Creek Crossing community center.
  • Breaking news. In August, developer Prescott Realty Group and partner Cypress Real Estate Advisors “finally” received funding to move forward with the first buildings, including apartments, at the 70-acre Lake Highlands Town Center mixed-use Transit Oriented Development (TOD) redevelopment project at Skillman Avenue and Walnut Hill Lane, the Dallas Morning News reported at the time. Plans include 300,000 square feet of retail space.
  • Planning for the City Lights power center at Live Oak Street and I-45 calls for 600,000 square feet of retail in two phases.
  • First half 2012 net absorption in the Highlands submarket, positive during both quarters, was 17,000 square feet alongside no new supply.
  • Second-quarter vacancy was 12.6%, down 20 basis points for the period, down 280 year-over-year.
  • Quarter-end anchor and non-anchor community-neighborhood sector vacancies were far apart at 8.5% and 16.8%.
  • Second-quarter overall asking and effective average lease rates were $16.73 psf and $14.39 psf, down 0.1% each for the quarter alone, up 1.1% and 1.3% since the second quarter of 2011.
  • Outlook. Modest positive net absorption over the remainder of the year should lower the vacancy rate to 12.3%. Respective growth rates of negative 0.5% and negative 0.3% are projected for the asking and effective average rents for the year.

Other

  • Uptown Dallas. Forest City Enterprises has acquired a three-acre site at McKinney Avenue and Blackburn Street in Uptown Dallas for the development of a $100 million residential-retail project, the Dallas Business Journal reported in August. The project will consist of a 21-story tower and two five-story buildings. The three buildings will have a total of 380 residential units on the upper floors and 37,000 square feet of retail space at ground level.
  • Victory Park. Victory Park UST Joint Venture I LP announced a partnership with Trademark Property Company to “reposition and redevelop” the retail portion of Dallas’ mixed-use Victory Park, the Fort Worth Business Press reported in May. “Trademark will create a leasing strategy for the ground-floor retail and the undeveloped land along Victory Park Lane,” according to the Business Journal.
  • Backfilling. “Another former Borders Books location has found a new tenant,” the Business Journal reported in July. LA Fitness has leased a 45,000-square-foot space at the former Borders in the Old Town Shopping Center near Lovers Lane and Greenville Avenue.
  • Love Field. “Dallas Love Field airport … wants to capitalize on its location by carving out new space for commercial development along Lemmon Avenue,” the Business Journal reported in June. “The plan, which could take as long as 20 years to fulfill, would open up about 3.2 million square feet of developable commercial property about four miles from downtown on busy Lemmon Avenue. … [D]evelopment could take the shape of retail, restaurant and office space.”
  • Far North Dallas. Beck Ventures bought the 39-year-old Valley View Center mall out of receivership in April for an undisclosed price, the Dallas Morning News reported at the time. The 60-acre property will be redeveloped as the mixed-use Dallas Midtown. Plans call for 1.5 million square feet of retail, office, and residential space.
  • With commercial development intensifying in the suburban south in recent years, the 600,000-square-foot Shops at Ten Mile Creek regional center has been proposed for Desoto.
  • The 803,500-square-foot Outlet Shops of Las Colinas is planned for Highway 161 and Las Colinas Boulevard, Irving.
  • Terrell. The city council of far east suburban Terrell and Dallas-based MGHerring Group reached a $30 million economic development agreement last year that will enable development of the 255-acre Eighty Twenty open-air retail center at I-20 and Highway 80. Reis cites plans for a 793,000-square-foot first phase.
  • More. Also in Terrell, an unnamed investor has acquired 1,123 acres from Fortress Investments for an undisclosed amount for “future development,” the Dallas Business Journal reported in June.