Retail boom: New shops, restaurants continue flooding into Austin area


Highlights

Weitzman says the Austin area has the strongest retail occupancy rate among major U.S. markets.

The rate is down just slightly compared to a year ago, due mainly to big-box retailers closing locations.

Austin remains atop the wish list for shops and restaurants of all sizes looking to expand, retail experts say.

That includes both local chains and national outlets.

A new report from Weitzman, a commercial real estate firm with offices across Texas, found that the Austin metro area has the strongest retail occupancy rate among all major U.S. markets.

The rate currently sits at 96 percent, according to Weitzman. That’s down slightly compared to a year ago, due mainly to several big-box retailers closing locations as they retrench or shut down altogether.

Recent big-box closings include Chair King in the Mueller development, Sports Authority at Southpark Meadows and several Office Depot and OfficeMax stores across the region as the two office supply chains combine operations.

Still, many of those spots are already spoken for and won’t sit dark for long. Total Wine & More, for instance, grabbed the Chair King spot at Mueller and a former OfficeMax near the Arboretum. The Arboretum store opened this past week, with Mueller set to follow this summer.

Near Lakeline Mall, HMart will combine buildings emptied by Bed Bath & Beyond and Sports Authority to build a grocery store targeting the area’s fast-growing Asian community.

And in North Austin, a former SuperTarget in the Shops at Tech Ridge is being divided into two spaces: one for Floor & Décor and another for Planet Fitness. Nearby, a Sears Grand department store is downsizing to make room for a 10-screen AMC movie theater due to debut in 2019.

Negotiations are underway for many of the other empty big-box spaces, Weitzman says.

“It’s definitely an interesting time right now,” said Britt Morrison, senior vice president in Weitzman’s Austin office. “It continues to amaze me how many groups we’re hearing from. They’ve been doing their homework. Everyone wants to be here.”

At the midway point of 2017, Morrison and others at Weitzman said they’ve noticed a number of trends emerge.

Growing grocers

Central Texas added 1.1 million square feet of retail space in 2016, with another 890,000 square feet of space set to come online this year.

Grocers, in many cases, are leading that growth, Morrison said.

“Wherever the grocers go, other tenants follow,” he said. “We see that over and over again.”

San Antonio-based H-E-B, the area’s dominant grocer, has a new store in Hutto, is enlarging its store in Marble Falls and has secured several parcels of land for future expansion, including ones at Interstate 35 and Slaughter Lane in South Austin, South Congress Avenue and East Oltorf Street in South Austin and in Dripping Springs.

The chain also recently bought an office complex in Northeast Austin to expand the headquarters for its Central Texas region, which encompasses more than 80 stores.

But H-E-B is in for some added competition, Morrison said.

Randalls, now part of the Albertsons family of grocery stores, is building a location in Georgetown. When it debuts late this year, it will be the chain’s 15th Central Texas store.

Work is wrapping up on the city’s first 99 Ranch Market at The Crescent, a shopping center being refurbished and re-tenanted at North Lamar and Airport boulevards. The Asian grocer will be located alongside a recently opened conveyor-belt sushi restaurant.

And Target is close to opening a small-scale store at the Dobie Twenty21 development on Guadalupe Street near the University of Texas campus. It will carry an assortment of student essentials, including food, the chain has said.

But the biggest additions, Morrison, said, will be discount German grocers Aldi and Lidl, which promise customers up to half off their food bills by offering an assortment of almost exclusively generic products. Both no-frills chains are in expansion mode nationwide and are already staking out sites in Central Texas.

Pflugerville city officials say Aldi has started work on a store there, while representatives for Lidl filed paperwork with the city of Kyle recently to build a store there.

Neither chain has given a timeline for when the local stores could open. When all is said and done, Morrison said he expects Lidl alone could open as many as 10 stores in the Austin area over the next two to three years.

“Lidl is popping up on a lot of site plans,” Morrison said. “It’s going to be really interesting to see how they try to take on the 800-pound gorilla that is H-E-B. They have such a stronghold here.”

Rising rents

All that demand means rents are rising in many cases across the region, according to Weitzman.

The average rent for small shops and restaurants in Class A shopping centers – the best of the best properties – ranges from the low to mid-$30s per square foot per year to as high as $40. Space in some newer Class A centers is going for as much as $42 per square foot per year.

Class B centers, which are a step down from Class A centers, are offering space in the low to high $20s, Weitzman found, while spots in lower-end Class C centers can be had from the teens to the low $20s.

Spiking property taxes, which are paid by tenants in many cases as part of their lease agreements, have proven particularly painful lately, Morrison said.

“Property taxes are really hurting tenants, especially the mom-and-pops,” he said. “Landlords are telling their tenants in a lot of cases, ‘Listen, we can hold your rent, but there’s nothing we can do about these property taxes.’ No one in their right mind expects them to go down any time soon.”

Restaurants, Morrison said, have been hit especially hard lately. Some recent Austin closures include El Burro and Nubian Queen Lola’s Cajun Soul Food Café, among others. Even some chains are feeling the pinch, with Taco Cabana and Pollo Tropical shuttering some stores here.

Still, other restaurateurs are typically more than willing to try to make a go of those vacated spaces, Morrison said.

“There’s been so much restaurant turnover,” he said. “A lot of the guys expanding right now are doing it on the backs of others, sitting back and letting others handle the buildout. When they take over those spaces, they’re able to come in at a much lower startup cost.”

Looking ahead

Hot spots across the region right now, according to Morrison, include MuellerThe Domain and the downtown area, where a number of shops and restaurants are envisioned for the southwestern quadrant, near the site of Austin’s new central library.

Meanwhile, he says East Austin, a popular place for expansion in recent years, is slowing down just a bit.

Northern suburbs such as Cedar Park, where Austin-based Endeavor Real Estate Group recently opened The Parke, a shopping center with the area’s first 365 by Whole Foods Market store, are doing well, too.

Chains currently in expansion mode locally, according to Weitzman, include Great Clips, Little Caesars Pizza, Juiceland, Massage Heights, Orangetheory Fitness, Pet Supermarket and Wingstop, among others.

Over the next few years, Endeavor’s impending redevelopment of the Plaza Saltillo site will create even more retail and restaurant space, Morrison said. So will the redevelopment of the former University Medical Center-Brackenridge tract.

“Basically, looking ahead, expect as much urban infill as we can take,” he said.



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