Tales Of Texas Retail
With expanding retailers and new centers to meet rising residential demand, 2004 has been a very good year for most Texas retail markets — but will the future be as bright?
Luci Cason

Texas has gotten a healthy dose of retail development so far this year. Steadily increasing job growth and a booming housing market are boosting retail expansion in the Lone Star State. Mixed-use, grocery-anchored and big box centers are cropping up throughout Texas, while many development authorities and developers are focusing on enhancing and refurbishing existing projects and developments.

“On average, we see Texas performing a little better than the rest of the country,” says Terry R. Montesi, CEO and principal of Fort Worth-based Trademark Property Company.

“Retail development in Texas' major markets is healthy and balanced,” concurs Herbert D. Weitzman, chairman and CEO of The Weitzman Group and Cencor Realty Services. “The development is, for the most part, demand driven, so it adds to occupancy, not vacancy. We’re also seeing a great level of activity in the redevelopment of vacated box stores for new uses. This also has helped keep occupancy steady.”

Mixed-use developments are particularly popular right now.

“Every city in Texas wants a mixed-use town center development,” says Greg Moe, an architect with Fort Worth-based architecture firm GSBS. “Open-air, mixed-use and entertainment centers are very popular throughout Texas. Young adults want to live, work, shop and play nearby to reduce their time wasted on the roadways and to minimize their escalating fuel costs.”

“Mixed-use development is generating quite bit of interest,” agrees Montesi. “Successful retailers are looking for expansion opportunities and the customer is looking for an alternative shopping venue.”

With retailers such as HEB and Kroger expanding rapidly, grocery-anchored centers also currently play a major role in the current Texas retail environment.

“The majority of retail developments in our major Texas markets are community shopping centers,” says Weitzman. “These are centers designed to appeal to a wide community trade area, and they are typically anchored by a grocery store or a discount department store. We’re also seeing a lot of activity from Wal-Mart Supercenter, Super Target and big boxes, including Home Depot, Lowe’s and others.”

Whatever their type of project, Texas developers are branching out and looking for new ways to attract shoppers, with innovative retail environments.

“Conventional mall environments are not attractive to shoppers today,” says B. Thomas Miller, Jr., principal and senior vice president of Trademark Property Company. “Shoppers want environments that are, in a sense, urban resorts with a mix of complementary uses including restaurants, retail, hotels, residential and loft office.”

Houston

“Houston is hard to ignore, being the fourth-largest metropolitan area in the country and the energy capital of the world,” notes Miller.

Indeed — retailers seem to be paying especially close attention to the city lately. Occupancy rates are up and vacant spaces left by the closing of area Kmart stores have leased up rapidly. Expanding grocery retailers, such as HEB (which is replacing its pantry stores in the area with large-format stores) and Kroger, and big box retailers are pushing demand for new construction to meet the needs of a growing Houston population, fueled by a growing job market.

“Houston has probably the best economy in the state right now,” says Ed Page of Page Partners, which represents about 75 national and regional retailers. “The power- and grocery-anchored centers are growing to follow the residential growth. We’re in a very solid growth mode. The significant projects that are being built are being pre-leased and the tenants, for the most part, are doing very well.”

“Houston is particularly active currently,” agrees Moe. “We have more projects in Houston than the entire remaining state combined.”

ALORE IV (A Leisure Oriented Retail Environment) in League City, south of Houston. ALORE IV, designed by GSBS, will feature a waterfront boardwalk environment with a mix of retail, entertainment, office and residential uses.

In North Houston’s master-planned community The Woodlands, Trademark has developed Market Street, a 34-acre, 454,000-square-foot, mixed-use development in The Woodlands Town Center. The open-air, main-street-style project is very pedestrian-friendly, featuring plazas, public art, murals and fountains that surround the one-, two- and three-story buildings housing retailers, restaurants, a specialty grocer and loft-style office space. Phase II of the project, which is being leased by Page Partners, will open next year.

Also being leased by Page Partners is the Midway Company’s Town and Country Mall in Houston. The existing mall will be demolished, except for a Neiman Marcus store, and will be replaced with a new multi-use center with a significant retail component that should be complete by late 2006 or early 2007.

Trademark Property’s Market Street, a 34-acre, 454,000-square-foot, mixed-use development in The Woodlands Town Center near Houston.

Dallas

Retail in the Dallas/Fort Worth metroplex is on the upswing due to the expansion of retailers like Wal-Mart, Target and Home Depot, while rental and occupancy rates are holding steady. Several malls are also undergoing expansions and renovations.

Shopping centers aren’t the only things being refurbished, though. Dallas’ downtown district is undergoing a major retail overhaul thanks to a new $2.5 million retail recruitment program that was approved by the Dallas City Council earlier this year and is being funded by a grant from Dallas’ City Center Tax Increment Financing (TIF) Fund.

Aimed at providing subsidies as an incentive for retailers to locate downtown, the 2-year program will focus on Dallas’ Main Street District — an area currently slated to become a major shopping destination. The district includes Main, Elm and Commerce streets, bordered by Harwood to the east and Field to the west, and is in the heart of the Dallas central business district.

Rendering of Downtown Dallas Mainstreet District, which is attracting retailers with tax incentives.

“Stores within the first block, which is where Neiman Marcus is, will be Neiman’s complementary,” says Hormann. “So we’re looking for apparel, shoe and accessory retailers in that block. In the second block, we’re looking for service retailers for local residents. The third block has been designated for houseware and gift item retailers.”

As buildings within the 3-block area are refurbished, they are added to the program’s inventory — currently about 150,000 square feet — and become available for prospective retailers.

Just north of Dallas, in Frisco, Cencor Realty Services has completed construction on the 132,000-square-foot Main Street Village. The center is anchored by a Kroger Signature store and includes retailers and restaurants such as Hallmark Gold Crown, Starbucks, Quiznos, The UPS Store and Cold Stone Creamery.

In a joint venture with ARCUS Realty Corporation, Dallas-based Phoenix Capital Partners has purchased more than 10 acres at the southeast corner of the future Dallas North Tollway and El Dorado Parkway in Frisco. Adjacent to a future Home Depot store, development for the site could include the sale of approximately eight pad sites, followed by the development of 59,000 square feet of in-line retail space.

Simon’s Firewheel Town Center is under development on 90 acres in the northeast Dallas suburb of Garland. Expected to open in October 2005, the regional center will include retailers such as Dillard's, Foley's, AMC Theatres, Barnes & Noble, Linens ‘N Things, Circuit City, Old Navy and Gap and restaurants like Romano's Macaroni Grill, Bone Daddy's House of Smoke, T.G.I. Friday's and Rockfish Seafood Grill. At buildout, Firewheel will house around 1 million square feet of retail space and about 75,000 square feet of office space.

Bass Pro Shops will open a new store at the Harbor Point Development near Garland, Texas.

Also in Garland, the renovation of Buckingham Plaza was recently completed by Cencor Realty Services. The renovation of the 92,569-square-foot center turned Buckingham’s anchor tenant space, which previously had been occupied by a grocery store, into multi-tenant space for two junior anchor tenants.

In Cedar Hill, Cencor Realty Services has started construction on Cedar Hill Pointe, a 90,000-square-foot shopping center, which is scheduled to open spring 2005. Cedar Hill Pointe will be anchored by a 30,100-square-foot Best Buy.

In nearby Rowlett, Phoenix Capital Partners, in a joint development with Direct Development, is developing Liberty Grove Plaza. The 94,453-square-foot will be anchored by Super Target.

Watauga Pavilion, near Dallas, was completed earlier this year. The over 200,000-square-foot center was designed by GSBS.

San Antonio

Perhaps the most significant retail project currently in development in San Antonio is The Rouse Company’s The Shops at La Cantera. Development of the 1.2 million-square-foot regional center will be taken over by General Growth Properties later this year when it purchases Rouse. Expected to be complete by September 2005, La Cantera will be anchored by Dillard’s, Nordstrom, Neiman Marcus and Foley’s. Other retail tenants, along with several restaurants including P.F. Chang’s China Bistro and Biaggi’s Ristorante Italiano, will occupy the remaining 300,000 to 400,000 square feet of the center. A second phase of La Cantera is tentatively planned for 2008.

Also in San Antonio, Cencor Realty Services completed Bandera at Mainland in September. The Wal-Mart-anchored center includes an additional 13,425 square feet of retail space, filled with tenants including Washington Mutual, Sprint, The UPS Store and Fantastic Sam’s. Currently, Cencor is completing work on Phase I of The Village at Forum Parkway, located in San Antonio’s growing Northeast area. Upon completion, the 150,000-square-foot center will include a Bassett Furniture Direct Store — the retailer’s second in the San Antonio area.

Austin

Austin has the highest retail occupancy of all the major Texas markets, according to mid-2004 figures released by The Weitzman Group that show the market’s overall occupancy at 95.5 percent. Home sales in the area are booming and, accordingly, so is retail development.

One project getting a lot of attention is Austin-based Schlosser Development’s Market District. The 5-block urban retail project in downtown Austin, just west of the city’s central business district, will roll out in three phases. The 1 million-square-foot development will feature the largest Whole Foods Market in the world, scheduled to be complete by the fourth quarter of this year, and will also house the grocer’s corporate headquarters. Other retailers will include Anthropologie, Bookpeople and REI. Restaurants, bars and an art house movie theater will also be part of the development’s streetscape.

Market District will also include local Austin specialty retailers, in addition to the national big boxes. Schlosser is careful to ensure that the center jibes with the unique needs and tastes of the Austin population and brings tourists and Austin residents alike back to the heart of the city.

“The Austin market is a different beast from the rest of Texas,” notes Gregory Kallenberg of Schlosser Development. “Dallas and Houston are huge retail markets that are getting saturated with anything and everything from the retail world. Austin, as a city, is more selective. Austin holds its unique local retailers dear and demands that carefully picked unique national and regional retailers are brought into the market.”

“There will always be building in the suburbs,” he says. “But we believe that the hot trend in real estate development is urban in-fill and city center revitalization. If our district is any indication, there is a need by national retailers to individualize themselves, and one of the ways they are doing this is by trying to return to the city center.”

Also in Austin, Cencor Realty Services has completed renovation work on one of the city’s largest and oldest shopping centers: Capital Plaza. New anchors, including Target (which was constructed from the ground up at the site of a demolished Montgomery Ward store), Ross Dress For Less, Office Max and Conn’s Appliances were added to the 430,000-square-foot center. The renovation also updated Capital Plaza’s exterior with new stucco façades, masonry accents and raised towers.

So far, 2004 has been a very good year for most of the major Texas retail markets — but will the future be as bright? Texas’ retail developers seem to agree that the growth will continue throughout 2004 and into 2005 as retail development continues to keep pace with job growth and an influx of new residents.

“Texas is an attractive Sun Belt state that continues to create jobs and grow. The business and tax environment is good for growth,” says Miller of Trademark Property Company.

GSBS’ Moe is ultimately optimistic as well. “2004 is an improvement over 2003 but not as much as we thought at the beginning of the year. Rising fuel costs, terrorist concerns, the war in Iraq and the pending presidential election are all factors creating uncertainty and slowing down the projected growth. That said, I think 2005 will be a significant growth year in Texas. Once the election is over, uncertainty will give way to the fundamentals of strong population growth, a stable, diverse Texas economy and pent-up demand resulting from the slowdown of the past few years. I don't think there is a slump anywhere in Texas. Going into 2005 we will be seeing the release of pent-up demand after several years of slow growth.”

JEFCO’S TWO MAJOR PROJECTS IN HOUSTON The Collection at Vintage Lakes, Houston. Houston-based JEFCO Development Corp. also has some exciting projects happening in the Houston area. One is The Collections at Vintage Lakes, a 54,330-square-foot project at SH 249 and Louetta Road in Houston, opening fall 2006. According to James E. Fisher, Jr., president and founder of JEFCO, the center will be a community lifestyle center with a unique courtyard containing fountains and oversized stone fireplaces. Restaurant options will range from Mexican to hibachi and sushi, along with pizza and ice cream. Retail will offer everything from high-end clothing stores to local dry cleaners. “People who live in the suburbs want the ability to have a certain feel of urbanism with outdoor patios but still be able to go home to their backyards for the kids,” Fisher says. “This enables them to have a sense of ‘I have it all’ lifestyle.” A second key project for JEFCO is The Parks at Boulder Creek, located at Pearland Parkway and Beltway 8 in Pearland. Phase I of the 140-acre project will open in fall 2005, with Phase II following in summer 2006. The Pearland project will ultimately include 600,000 square feet of retail space (comprised of lifestyle and discount tenants), 300,000 square feet of office space, 800,000 square feet of apartments and 310,000 square feet of single-family homes. The Parks at Boulder Creek, Pearland, Texas. “What is unique about the Pearland project is that, not only is it on a main artery and the main parkway entering into an entire bedroom community, but it also happens to be located on a 360-acre park,” Fisher says. “This allows us to take it to another level. We now get to master-plan an entire 140-acre master-planned lifestyle community, which will have a different feel than a large 25,000-acre master-planned community. We will mix the park in with the lifestyle elements, giving it a nice rounded resort feel.” Mark Tweed, president of Beverly Hills, Calif.-based HTH Group Architects, which is designing The Parks at Boulder Creek, agrees. “Pearland is a lifestyle center that is taken to another level,” he says. “A bold statement for a region that, in many respects, is being introduced to the lifestyle outdoor center in the first place.” Tweed adds that suburban shoppers can get the best of both worlds. “The outcome of the design is one marked by lifestyle retail that can be driven to but also has a built-in resident population that can walk to shopping and to office work space without driving,” he says. “Both realities benefit.” —  Katie Foxworth

LEVCOR’S NEWEST HOUSTON PROJECT:HEDWIG VILLAGE SHOPPING CENTER When Larry Levine founded his Houston-based company Levcor, Inc. in 1980, his mission was to specialize in shopping centers ranging from 50,000 to 500,000 square feet. More than 20 years later, Levcor’s president seems to be right on track — with his formula for success having won the company nearly 3 million square feet of retail space in Houston since 1991. Levor is redeveloping Hedwig Village Shopping Center in Hedwig Village (Houston). Levcor’s newest acquisition-turned-redevelopment venture, Hedwig Village Shopping Center, is proving to be no exception to the company’s profitable track record. “The project has been very well received,” Levine says. Located at Interstate 10 West and Mustang Lane in the city of Hedwig Village in Houston, the property is situated in one of the wealthiest neighborhoods in the nation, according to Levine. “It is one of the top five income per capita areas in the United States,” he says. “The project is in the middle a silk stocking area of Houston.” On top of Hedwig’s affluence, the area also offers other unique characteristics that Levcor believes will create a successful development. “Hedwig is one of the only areas in Houston that has zoning, and it is a fully developed area,” he says. “There is no other competition.” Featuring 165,000 square feet of retail on approximately 14.5 acres, Hedwig Village is a redevelopment of a former Target-anchored center. “We are basically gutting the building, totally renovating it,” Levine says. A 61,754-square-foot Marshalls Megastore and a Pier 1 Imports are two of the four major tenants Levcor currently has lined up, and the property also includes smaller tenants such as South Trust Bank and Verizon. A renovated parking lot will provide parking for more than 1,000 vehicles. Levcor, Inc. is developing, managing and leasing the project. Completion is tentatively set for spring 2005. —  Lindsey Walker

DESOTO, TEXAS: UNTAPPED BUYING POTENTIAL CRB Enterprises is developing Centre Park Plaza, a mixed-use project opening in spring 2007 in DeSoto. DeSoto has been an underserved market since the late 1980s,” says Scott D. Livingston, director of marketing and business development with the DeSoto Economic Development Corporation (DEDC). “Excluding the recently announced Wal-Mart Supercenter, four separate grocery-anchored shopping centers currently serve our citizens.” Many of the proposed new retail developments are taking place along Interstate 35E, Belt Line Road (FM 1382), Hampton Road and Pleasant Run Road. However, Livingston points out, significant demand still exists in these same corridors for full-menu, sit-down restaurants, as well as upscale commercial retail. Two key projects include the aforementioned Wal-Mart Supercenter, which is being developed by Wal-Mart Real Estate at the northeast corner of Belt Line Road and Elerson Road. The 50-acre project will include a 210,000-square-foot supercenter and six additional sites, totaling 12 acres, for complementary retail development. The supercenter is anticipated to open in the spring of 2006. Another key project is a 93-acre planned development near the southwest corner of Interstate 20 and Interstate 35E called Centre Park Plaza. CRB Enterprises Inc. is working to develop the first site for a six-story, mixed-use building that will offer 72,000 square feet of space for commercial offices, luxury lofts and mixed retail. Centre Park Plaza is open now, and the six-story building is scheduled to open in spring 2007. “The DEDC attributes much of this new growth to a rebounding economy, growing consumer confidence, the completion of major highway construction and an increasing awareness of the untapped buying power in DeSoto,” Livingston says. As a bedroom community to the Dallas/Fort Worth metroplex, DeSoto offers a market of opportunity to retailers and developers. The city boasts an average household income of more than $91,000, and its central location between Interstate 20, Interstate 35E, US Hwy 67 and Belt Line Road enables it to attract customers from Cedar Hill, Duncanville, Lancaster, Red Oak, Oak Leaf, Ovilla and Waxahachie. DeSoto offers upscale amenities along all the major thoroughfares, and its pro-business attitude makes it a prime location for new commercial retail business. — Katie Foxworth

HOUSTON: DYNAMIC DIVERSITY By Blake Tartt III Blake Tartt If asked to describe a Houstonian, you’d probably conjure up images of cowboy hats, boots and jeans. You’re right, partially! But, Houston is far more than the stereotypical Texan. With more than 90 languages spoken, Houstonians enjoy one of the most diverse profiles of any major metropolitan area in the country. Retailers, large and small, are attracted to the vast potential Houston has to offer. Stretching more than 8,000 square miles, the Houston retail scene is made up of a number of major urban and suburban markets. Houstonians love convenience. Rooftops drive retail whether they are in the revitalized inner city or in the city’s “edge” communities. Houstonians are also rather unique in their propensity for “buying” over “shopping.” Affluent Houstonians travel to upscale retail markets, shopping on the coasts to satisfy their appetite for the retail “edge.” The balance of the market values convenience, proximity and value in their selection of retail centers with a buying mentality. Responding to Houston’s expansive geography, the city’s mall sector resembles a hub-and-spoke with The Galleria at the center and a number of malls strategically located on the perimeter near population centers. While retaining its prominence as Houston’s premier tourist attraction, The Galleria is at the mercy of the economy for its volume of retail traffic. Several of the city’s malls, including The Galleria, have undergone redevelopment and expansion to achieve a targeted mix of department store, specialty and small shops. Catering to the customer is key. Following national trends, big box retailers like Wal-Mart and Target are expanding and tracking Houston’s growth. Their success is fueling consolidation in this sector. The closing of Kmart and Service Merchandise, coupled with consolidation in the grocery market, has left Houston with a number of unanchored centers. A few of these vacancies have been reinvented with adaptive reuses with anchor tenants like the city’s community college system. Others remain vacant, waiting for their next life. Trendy mid-box centers are attracted to Houstonian’s appetite for their wares, but are highly discriminating when considering new locations and sensitive to the potential cannibalization of one market in favor of another. Site selection models zero in on shopper profiles with attention to issues like drive times and shopper convenience. Dramatic growth in Houston’s master planned communities, like The Woodlands and Cinco Ranch, has provided excellent opportunities for neighborhood retail development. Houston is one of the best markets in the country for small business owners prompting growth in mom-and-pop shop owners and franchisees, particularly in neighborhood centers. Marketing programs addressing the unique requirements of this segment offer flexible lease structures, build-out allowances and management agreements. With oil prices hovering at $50 a barrel, it’s easy to forecast growth in the Houston economy. The city enjoys one of the lowest unemployment rates in the country with a low cost of living, range of affordable housing options and diverse labor base.  All of these factors and more make Houston a retail location of choice. — Blake Tart III is president of New Regional Planning, a Houston-based real estate strategy and brokerage firm.

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