SURVEY REPORT SHOPPING CENTER 2019 REVIEW & FORECAST WEITZMAN 1 FORECAST REPORT 2019 TEXAS’ MOST IN-DEPTH AND RESPECTED RETAIL MARKET INSIGHT AUSTIN / DALLAS / FORT WORTH / HOUSTON / SAN ANTONIO WEITZMAN 2 FORECAST REPORT 2019 TABLE OF CONTENTS 04 AUSTIN REVIEW 08 DALLAS - FORT WORTH REVIEW 16 HOUSTON REVIEW 20 SAN ANTONIO REVIEW 24 APPENDICES 24 APPENDIX A: AUSTIN CONSTRUCTION 26 APPENDIX B: DALLAS-FORT WORTH CONSTRUCTION 29 APPENDIX C: HOUSTON CONSTRUCTION 32 APPENDIX D: SAN ANTONIO CONSTRUCTION 33 MAJOR TEXAS METROS 2018 34 DEFINITIONS 35 COMPANY OVERVIEW 35 ACKNOWLEDGMENTS WEITZMAN 3 FORECAST REPORT 2019 AUSTIN REVIEW AUSTIN The information contained herein was obtained from sources deemed reliable; however, Weitzman makes no guarantees, warranties or representations as to the completeness or accuracy thereof. The presentation of this real estate information is subject to errors or omissions. WEITZMAN 04 FORECAST REPORT 2019 PARTY CITY AND OLD NAVY OPENED IN ADJACENT SPACES AT SOUTHPARK MEADOWS AUSTIN OCCUPANCY, STILL HIGH, IN AUSTIN TAKES A STEP BACK Austin, the longtime home to the During 2018, the market saw Sears anchor healthiest major-metro retail market in stores close, including a Sears Grand Texas, continued to maintain that position store at IH-35 and Parmer Lane, and The best-located of these vacancies despite softening in its overall occupancy traditional Sears anchor stores at Lakeline are attracting tenant interest, and levels. Mall, Barton Creek Mall and Hancock there is a possibility that some or all of Center. These stores, each totaling the locations will be redeveloped and/ As of year-end 2018, the Austin-area between 172,000 and 185,000 square feet, or subdivided for multiple tenants. For retail market shows an overall occupancy now represent the largest single source of example, a portion of the vacant Sears rate of approximately 95.8 percent, down vacancy in the Austin area. Grand will open in 2019 as a multi-screen from 96.1 percent at mid-year due to the cinema. In a market as tight as Austin’s, store closings from outmoded legacy Austin also saw four metro-area the vacancies can represent opportunity retailers. locations of Toys “R” Us and Babies “R” in a market that not only reports low Us close. The retailer closed three area vacancy, but also little additional new The market’s largest vacancy spaces “Toys” stores totaling approximately space. are found in box stores that closed due 116,500 square feet of GLA, as well as a to the nationwide problems of legacy 29,960-square-foot location for Babies “R” This period of low construction is retailers Sears and Toys “R” Us. A truer Us in Sunset Valley. reflected in the numbers. Over the past picture of the health of the market can six years, from 2013 through 2018, the be seen in Austin-area retail projects, In terms of smaller concepts, Mattress market has added a total of approximately which are maintaining some of their Firm closed more than a dozen area 5.2 million square feet. That total is not highest occupancy rates on record due locations. However, the outlook for much more than the 4.2 million square to steady tenant demand at a time when these vacancies is positive, as a number feet added in 2007 – just one year. During the construction of new retail space of retailers are already in the works 2008, when the market was first entering remains near record lows. The vacancy to backfill these well-located, well- the great recession, new space totaled 2.8 also is mitigated by new construction that positioned former mattress stores. million square feet. opened significantly leased, as well as the backfilling of existing space, all of which accounted for hundreds of thousands of 38.0 2.8 93.0 49.5 0.7 95.8 square feet of occupancy in 2018. MILLION MILLION PERCENT MILLION MILLION PERCENT Weitzman reviews an Austin-area retail INVENTORY CONSTRUCTION OCCUPANCY INVENTORY CONSTRUCTION OCCUPANCY space inventory of 49.5 million in retail projects with 25,000 square feet or more. Even with the increase in vacant space, Austin remains the strongest major-metro retail market in Texas, and one of the strongest in the United States, in terms of occupancy. 2008 2018 WEITZMAN 05 FORECAST REPORT 2019 These findings are based on a review of area served by Ben White Boulevard, retail market conditions for the greater South Congress Avenue and St. Elmo Austin area as of year-end 2018 by Road. The first phase of retail, which KEY CONCEPTS BACKFILL Weitzman, a statewide retail-focused represents the redevelopment of a VACANCIES IN 2018 commercial real estate services firm. The mid-century industrial building and market’s occupancy rate is based on an totals approximately 40,000 square inventory of approximately 49.5 million feet, is set for 2019. Additional phases OLD NAVY AMC square feet of retail space in projects with of mixed-use space are planned for the 25,000 square feet or more. project; PARTY CITY PETCO The market’s healthy occupancy is aided • Crossing Point, a multi-tenant MARSHALLS H MART by demand-based new construction that shopping center that represents the came online significantly or fully occupied redevelopment of a former Garden 99 RANCH MARKET PUNCH BOWL and a redevelopment project that created Ridge at IH-35 and SH-45 in Round SOCIAL a multi-tenant retail center at the site Rock. Concepts including Crunch of a closed home furnishings superstore Fitness and Altitude Trampoline Park in Round Rock. Details on new and have opened at the project; redevelopment construction can be found later in this report. • Petco, which leased 13,108 square feet in Center of the Hills, a community For calendar year 2018, the market BACKFILLED OR REDEVELOPED center anchored by H-E-B at 7010 W. added approximately 670,000 square RETAIL SPACE INCLUDES: Highway 71; feet of retail space in new and expanded projects. The total is exceptionally low, • Old Navy and Party City, which • 99 Ranch Market, which backfilled especially for a major metro area that opened in the space in South Park former Big Lots and Asian Oriental reports high retail occupancy, a strong Meadows previously occupied by Market spaces for its first Austin housing market and the lowest major- Sports Authority; location. 99 Ranch Market is the anchor metro unemployment rate in Texas. for The Crescent, located on Airport The 2018 construction total is a slight • Marshalls, which leased a space Boulevard at IH-35 in North Austin, increase compared to the 640,000 square formerly occupied by Staples in which includes a number of other feet added in 2017, which itself was the Shops at Arbor Trails, a center popular Asian concepts; historically low for the market. anchored by Costco and Whole Foods Market; • H Mart, which backfilled two adjacent boxes totaling nearly 69,000 square • St. Elmo Public Market, which is feet in a center located at 11301 developing and redeveloping space Lakeline Boulevard. The Asian grocery in a formerly industrial area in the store, the first in Austin for the chain, opened in early 2018; 99 RANCH MARKET BACKFILLED SPACE AT THE CRESCENT FOR ITS FIRST AUSTIN LOCATION WEITZMAN 06 FORECAST REPORT 2019 • The Blueprint Building, a Active concepts range from quick-serve a strong single- and multi-family housing 36,000-square-foot, four-story to white tablecloth. Many redevelopment market and an investment market that the restaurant and entertainment project projects, including Plaza Saltillo, The prestigious Urban Land Institute dubbed at 501 W. Sixth Street at the site of Blueprint Building and Fareground the best overall real estate investment a former commercial building. The at One Eleven, have heavy restaurant and development market in the U.S. location is now home to several tenancy. Based on this economic strength and the restaurants and popular Austin continued balance of supply and demand, entertainment-bar concept The AUSTIN RENTAL RATES all signs point to continued health for the Goodnight; Austin-area retail market. Rental rates in the Austin area retail • Fareground at One Eleven, a food hall market are steady while maintaining that opened in early 2018 in former the rate increases of previous years. plaza and lobby space at 111 Congress Gross rental rates, which incorporate Avenue, directly across from the J.W. base rent and triple nets, are showing Marriott, in downtown Austin. The food higher increases on average than asking hall, considered the first in the city, rents. Triple nets, representing tenants’ opened with several distinct concepts negotiated pro-rata share of operating from well-known local operators; expenses, and sharp increases in appraised property valuations continue • Spec’s Wine Spirits and Finer Food, to increase, in some cases doubling. which backfilled an 11,000-square-foot junior-anchor box at 12611 Hymeadow Further, increasing construction and Drive, near Lakeline Mall; labor costs typically mean that new projects are required to charge rental • Ulta Beauty, along with Hibbett rates higher than market averages to Sports, Zoës Kitchen and others, meet pro formas, which limits the amount which leased existing space in of new space coming onto the market Georgetown’s Wolf Ranch Town Center, and, ironically, keeps rents at current at IH-35 and University Avenue; high levels. • AMC, which in 2019 will open a For all classes of space, actual rates 45,000-square-foot cinema in part of a for specific centers and spaces can go 0.75 MIL Sears department store that closed in notably lower or higher than the rates 2018 at N. IH-35 and Parmer Lane; listed here due to factors including anchors, traffic, demographics and • A former Bealls, which closed in early location within a center.