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Read Their Lips: No New Projects

January 20, 2010

By Amy Wolff Sorter, Globe Street

DALLAS-Retail construction figures in 2009 hung at 2.9 million square feet, representing the lowest total of the decade. Area experts tell GlobeSt.com that 2010 will see even less spilling out of the pipeline, as retailers continue better inventory management, and capital for projects remains difficult to obtain.

Figures presented at the Weitzman Group's 20th Annual Shopping Center Survey and Forecast on Jan. 19 showed 179 million square feet of retail sprawled across 41 submarkets and an area-wide occupancy of 86.4%, down from 2008's occupancy of 87.6%. Unanchored neighborhood strip centers ended up at 82.2%, down from 83.3% while grocery-anchored centers were at 85.2%, down from 86.7% at YE 2009. Power centers held their own at just over 90.6% (down from 92.1% from the end of 2008), while mixed-use centers took a hit, showing a YE total of 86.6% versus the 91.3% shown at the end of 2008.

But the intriguing figure involves the new space coming on line. Though close to 3 million square feet delivered might seem a great deal, compared to the 8.8 million square feet that came on line in 2000, the current total is almost a drop in the bucket. It's also less than the 4.7 million square foot delivered in 2008.

Weitzman Group's Bob Young says the projects currently going vertical are either second phases of or additions to already existing projects. "In 2010, I'd be surprised if there are any retail projects of any size developed, other than an occasional built to suit for a given entity, or the next phase of a continuing project that's been successful," Young remarks. "Our construction numbers will pale in 2010."

In an interview separate from the Weitzman Group's presentation EDGE's Brian Murphy agrees that the only product type that could go vertical in 2010 is grocery stores, built by the companies that own them. "The really big projects, the speculative projects, have been put off a ways," he adds.

Will more of that space trade hands as investments in the next year? Hard to say. Frank Bullock, executive vice president and market leader with SRS/Dallas-Fort Worth says more private equity is starting to move into the market, with opportunistic buyers ready to jump in. The war chests are full, he says, so look for some ammunition to be spent and retail projects to trade hands.
"The wait-and-see period has been wait-and-seen," adds Bullock in an interview unrelated to the Weitzman presentation. "Capital doesn't like to sit around and make 2% in the bank, it wants to go to work. People are ready for that, barring some kind of political meltdown."
But Young acknowledges he isn't quite ready to peg 2010 as the Year of the Buy just yet. He agrees with Bullock that the capital is waiting and it wants to get active. What might stop it, however, is the buyer-seller gap. "Right now, if you talk to 100 people in the business, there's still a fairly large gap between the buying and selling dynamics," Young remarks.

Furthermore, Murphy says, no one is going to buy much of anything unless the banks start loosening up their own capital. "This market isn't going to grow a whole lot unless the banks lend the money," he comments.