Retail availability in DFW at all-time low

EXECUTIVE SUMMARY

Q3 2023 in Review
By the end of Q3 2023, the overall vacancy rate in the Dallas-Fort Worth (DFW) retail market decreased to 5.4%, down by 10 basis points from 5.5% in Q2 2023. Net absorption decreased 13% quarter-over-quarter, from 1.1 million sq. ft. to 957,194 sq. ft. Despite the decrease, net absorption has remained positive for 12 consecutive quarters. Year-to-date net absorption (2.4 million sq. ft.) has outpaced year-to-date deliveries (2.3 million sq. ft.) by 99,268 sq. ft. Consistent demand and competition for retail space has tightened the availability rate in DFW’s retail sector to an all-time low of 5.4%. Only 7% of the year-to-date deliveries are 0% leased, contributing to the decrease in the overall vacancy rate. Both leasing activity and construction increased 6% quarter-over-quarter to 1.8 million sq. ft. and 4.6 million sq. ft., respectively. Lastly, limited available space has driven rents up to a record-high, standing at $19.75 per sq. ft.—a 9% increase from the $18.09 per sq. ft. in Q3 2022.

Dallas-Fort Worth Economic Update
The DFW unemployment rate increased to 3.9% in August 2023, slightly up from 3.8% in July 2023. The metro’s jobless rate was higher than the nation’s rate (3.8%), and lower than the state’s rate (4.1%). As of August 2023, total employment in DFW was 4.2 million. DFW private hourly earnings dipped to $33.69 in August 2023 from $34.92 in July 2023. Year-over-year, the CPI-U advanced 4.6% and the energy index fell 6.2%.

MARKET OVERVIEW

DFW Retail Deal & Broker Spotlight 
DFW Retail experts Ranjin Mathew and Derek Anthony arranged a 2,010-sq.-ft. retail lease with Haraz Coffee House, a Michigan-based coffee shop opening their first location in Houston, located at 10009 N MacArthur Blvd Ste 101 in Irving, Texas. Mr. Mathew represented the tenant, while Mr. Anthony represented the landlord.

Leasing Increases 6% Quarter-Over-Quarter
Quarterly leasing velocity—which is comprised of both new leases and renewals—stood at 1.9 million sq. ft.—up 6% from 1.8 million sq. ft. last quarter. Year-to-date, leasing activity registered at 6.3 million sq. ft. Notable transactions within Q3 2023 include Big Lots inking a deal for 38,000 sq. ft. of retail space at 6708 Lake Worth Boulevard, and Texas Thrift signing a lease for 27,941 sq. ft. of retail space at 6246 Rufe Snow Drive.

Construction Nears 5 Million Sq. Ft.
Retail construction is at 4.9 million sq. ft., up 6% from 4.6 million sq. ft. last quarter. Year-over-year, construction increased 28% from 3.8 million sq. ft. in Q3 2022. The Far North Dallas submarket led construction, with 1.8 million sq. ft.—or 37%—of all space under development, followed by the North Central Dallas submarket with 1.1 million sq. ft (23%). New construction in Q3 2023 included a 240,000-sq.-ft. fitness center, Life Time Fitness, at 13331 Preston Road, and a 50,000-sq.-ft. retail center at 500 Marketplace Boulevard. These two buildings are set to be completed in October 2024 and April 2024, respectively. Meanwhile, deliveries decreased 70% year-over-year from 1.7 million sq. ft. to 523,374 sq. ft. Year to date, deliveries are at 2.3 million sq. ft.

Record-High Asking Rents
Due to tightening space availability, DFW’s annual retail rent growth (9%) has outpaced the national average (3.5%) over the past year. DFW’s availability rate tightened to 5.4%, decreasing 10 basis points from the previous year—an all-time low for the metro’s retail sector. In turn, asking rents rose 9% year-over-year from $18.09 per sq. ft. in Q3 2022 to $19.75 per sq. ft.—a record-high for DFW’s retail sector. On the quarter, the North Central Dallas submarket had the highest average rate at $26.44 per sq. ft. On the other hand, the Southeast Dallas submarket had the lowest average rate at $14.45 per sq. ft. Asking rents are projected to remain on an upward trajectory—reaching $24.63 per sq. ft. by Q3 2028.

Alex Babcock
Senior Research Analyst
[email protected]
tel 713 275 9618