Report: Austin is state’s healthiest retail market


Highlights

Toys R Us and Babies R Us vacancies impacted Austin’s vacancy rate by a miniscule .009 percent.

The space crunch means rents will continue to rise, Morrison said.

Despite several recent high-profile closures – and more still on the horizon – the Central Texas retail sector continues to be red hot.

A new report from Weitzman, a commercial real estate firm with offices across Texas, found that Austin’s 96.1 percent retail occupancy rate is the state’s highest – and one of the best in the nation.

That holds true even when you factor in the exit of Toys R Us and Babies R Us from the market, leaving behind four empty storefronts totaling almost 150,000 square feet.

Weitzman found that the Toys R Us and Babies R Us vacancies impacted Austin’s retail vacancy rate by a miniscule .009 percent.

Britt Morrison, senior vice president in Weitzman’s Austin office, said there’s already interest in many of the Toys R Us and Babies R Us spots. He said he doesn’t expect them to stay empty for long.

“If you look at the former locations of some of Austin’s Toys R Us stores, you’ll see a few fall in the areas of town which are surrounded by a number of new mixed-use developments,” Morrison said. “While our market certainly allows for some quick and easy backfill opportunities on these spaces, I think you’ll see a number of these landlords – especially the ones who own centers which are within Austin’s core – take a more strategic, long-term approach in backfilling as a few are ripe for redevelopment opportunities.”

Sears is also closing stores. The Sears Grand in North Austin is now shuttered, while the Sears store at Lakeline Mall in Northwest Austin is running a going-out-of-business sale expected to wrap up in September.

And in South Austin, ecofriendly home improvement store TreeHouse is winding down local operations.

With a relatively small amount of new retail space in the development pipeline, it’s likely those spots won’t be dark long, Weitzman predicts. Half of the Sears Grand store, for instance, has already been snagged by AMC, which will open a 10-screen movie theater there next year.

A Lakeline Mall representive told the American-Statesman the center has no plans to announce at present for the Sears store there.

Elsewhere in Central Texas, Asian grocer H-Mart backfilled two empty big boxes near Lakeline Mall, a 99 Ranch supermarket took over a former Big Lots spot at The Crescent in Central Austin, Party City and Old Navy split up a former Sports Authority at Southpark Meadows in South Austin and Punch Bowl Social, an entertainment venue, has leased the former Gold’s Gym location at West Sixth Street and Congress Avenue in downtown Austin.

Rising rents

The space crunch means rents will continue to rise, Morrison said.

“This is the third or fourth year in a row with minimal new construction, so we’re continuing to see rental rates increase,” he said. “Austin is tops among Texas’ major metros, yet the market still reports only 700,000 square feet being added this year to an inventory of 49.5 million square feet. That’s between 1 and 2 percent increase total in leasable space, hence the rising rates across the state.”

Dallas/Fort Worth is the Texas market with the most active retail construction right now, Weitzman found, with 3.48 million square feet of space being added this year.

In the Austin area, rents for small-shop space in Class A centers – the best of the best – start north of $30 per square foot and can go as high as $50 or more per square foot for new construction, according to Weitzman.

Rents in Class B centers are between $20 and $30 per square foot, and rates in Class C centers start in the teens and can go as high as $20 or more per square foot.

Hot spots

While retail is healthy across most of the Austin area, there are several spots in particular that are flourishing. Downtown Austin is high on that list, Morrison said.

“It would probably be less time-consuming to denote which parts of town aren’t seeing growth,” he said. “It’s easy to rattle off the usual suspects of the major north-south corridors, the eastside, etc. However, I think 2018-19 undoubtedly has been all about downtown. The abundant amount of hotel, office and residential growth notwithstanding, the downtown restaurant/entertainment scene is witnessing a boom unlike anything it’s seen in its relatively young existence.”

Morrison points to the additions of True Food Kitchen at the Seaholm site, Flower Child and North Italia in the new Northshore tower, Arlo Grey in The Line hotel and The Fareground food hall as just a few of many examples of downtown’s boom.

“Austin favorite Torchy’s is set to follow later this year with their first downtown location,” Morrison said. “Meanwhile, immediately north of Second Street you have news of Punch Bowl Social, Cava, TenTen Japanese, Chispas, the soon-to-be expansion of the rooftop Rattle Inn space for three concepts and approximately half a dozen other chef-driven restaurant/entertainment concepts either recently opened or set to begin construction soon.

“It’s easy to see why downtown Austin is likely going to continue its longstanding tradition as the food and entertainment capital of Texas.”



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