Chris Maguire
CEO & Chairman of the Board
Dallas/Ft. Worth Headquarters
Fort Worth, Texas recently held their annual retail forecast where our CEO, Chris Maguire, had an opportunity to speak about the industry and his predictions moving forward. Below we have shared his thoughts on the national industry as well as Tarrant County.
2013 Tarrant County Retail Forecast
Quite simply, the retail industry is as dynamic as they come. Consumer behavior, economic factors and emerging technology directly impact all players in the world of retail. All players in the retail real estate world — including merchants, developers and landlords – must be nimble in order to keep pace with the market’s fickle wants and desires. Just as retailers look at the nation as a whole before determining which markets to enter, let us review the retail industry as a whole and then shift the focus to Tarrant County.
National Retail Snapshot
Even though the retail market is finally showing signs of recovery, it is actually over-retailed to the tune of 20-25% plus. Any excess inventory is either being forced out of the market or being converted into an alternative use that aligns more with consumer demand. In order to thrive, those remaining retailers not forced out have to adapt to the new marketplace. This adaptation includes various forms of shrinking: they will either need to downsize their workforces, reduce their store size, adjust inventories or perform a combination of these tactics to reduce costs and maintain operating efficiencies. In addition to downsizing, the retail world has encountered an increased demand for retailers and developers to create a superior and unique customer experience. With shopper expectations so high and the growth in e-commerce, it is more important than ever to realize that the role of the brick-and-mortar store is still very important, but it has shifted.. The development of new retail centers and the inventory of retail space have both declined steadily over the past ten years. In addition it is estimated that nearly one-third of the current retail inventory is now dysfunctional, irreparably damaged, poorly located, or obsolete. As a result, retailers are now faced with a limited supply of viable existing and new space with no meaningful pipeline forecasted for at least the next three years. Key economic factors that have an impact on retailer expansion and operations include job growth and population change, as well as consumer confidence levels.. The ‘fiscal cliff’ tax increases only added fuel to the fire and reduced consumer’s hope for future financial stability. All of these items are contributing to reduced spending and a consumer who is more value conscious than ever.
The Internet Effect
The Internet plays a huge role in how retailers operate. Due to the relative convenience of online shopping, traditional brick-and-mortar retailers are faced with combatting the practice of showrooming — examining merchandise in a traditional brick-and-mortar retail setting but purchasing online often at a lower price. Some national retailers have attempted to compete with showroomers by reducing price or price matching. Although online shopping is certainly growing in popularity, the Internet’s impact on overall retail sales may not be as significant as one might believe. Data suggests that e-commerce represents around 6% of overall retail sales in the U.S. Smart retailers find ways to utilize the Internet hand-in-hand with their traditional storefront operations. And many formerly online-only retailers have or are adding brick-and-mortar stores to their strategies in order to better connect with their customers. Apple is probably the most notable of these. The retailer had no brick-and-mortar presence prior to 2001 and now boasts some of the highest sales per square foot in the retail industry. Hoping to follow suit, Samsung, Microsoft and Google are all building or testing brick-and-mortar concepts. Microsoft’s COO, Kevin Turner stated, “The biggest single thing we’ve learned from stores is it’s helping us to transition from thinking about our customers to thinking like our customers.” Bottom line, the Internet will not replace brick-and-mortar shopping altogether as the experiential element of shopping in a store cannot be replicated online.
National Retail Trends
Retail trends that we should anticipate during the next few years include the continued downsizing of retailer store counts, and in some cases, complete closures. Some of the remaining retailers have learned how to make their businesses successful enough to thrive and even expand including Pier 1 Imports and Ross among others. Consumers will continue to benefit from entrepreneurs who are racing to launch the next big thing – that innovative product or concept that captivates the masses. Similarly, the retail center will continue to evolve as more uses that drive shopper traffic seven days a week, day and night, are added to the merchant mix. Shopping centers will be redeveloped to better compete for market share and mixed-use concepts will expand as the strategic combination of multi-family residential, office and retail has found success in the form of urban villages. Within stores, progressive retailers will incorporate state-of-the-art product displays and fixtures, as well as empower store associates with better product knowledge, and even introduce restaurants within retail concepts. Developers will enhance the customer experience throughout its properties by providing safe, fun and entertaining environments for all, including children’s play areas, free Wi-Fi access and the appropriate mix of retailers and restaurants for mass appeal.
Tarrant County Retail Trends
More specifically in the Dallas-Fort Worth Metroplex, no matter how you measure it, the economy is strong. The 28.5-million-square-foot Fort Worth retail market managed to absorb all the new space completed in 2012 during the third quarter. In July, two neighborhood centers, the 121,000-square-foot The Shops at Timberland Crossing and the 18,600-square-foot The Towers of Grapevine completed construction, but net absorption totaled 197,000 square feet for the quarter. The vacancy rate fell 20 basis points to 13.1%, and remained at that level in October. There were five qualifying retail investment sales for $78 million in the first three quarters of 2012, including one third quarter deal. The leading sale of the year is a portion of the 465,054-square-foot Montgomery Plaza in Fort Worth, sold by Kimco Realty to RioCan in June for $44.4 million ($191 psf). The rolling 12 month cap rate is 6.0% based on five deals, the same as the quarter before but significantly down from earlier rates. Just this month, University Park Village was sold for $105 million ($606 psf). Community-neighborhood center rents have edged up thus far in 2012 after falling the prior three years. During the third quarter the average asking rent rose 0.2% to $14.30 psf. The power center vacancy rate is 7.8% for the third quarter of 2012, unchanged from the prior quarter but down 100 basis points from a year earlier. The average asking rent for power centers is $19.97 psf, up slightly for the quarter and down slightly year-over-year. The Renaissance Square power center is the largest project under construction, and is expected to complete construction in early 2014. Five community and neighborhood centers, led by Parkwood Plaza community center in northeast Fort Worth, are also under construction. Phase III of the West 7th development, Museum Place’s latest phase, a new gathering space in The Sundance Square plaza, and two mixed-use projects round out the current under construction list. Competitive advantage and points of differentiation will be key focus points for all the players in the game of retail this year. The game is always changing, so you have to be willing and able to change direction on a dime.