April 1st, 2008 - By Steve Lieberman | CEO. The southwest continues to provide a strong market for retailers, enabling them to balance out shortfalls in other parts of the country. Nationally, sales have slowed down and retailers are pulling back on their new store openings and capital spending. However, there does not appear to be a material reduction in statewide activity due to the strong job growth and diverse industries driving the Texas economy. DFW gained almost 80,000 jobs in the past 12 months. Also, the energy industry is pumping billions of dollars into this region as well. Houston added over 100,000 jobs this past year and overall retail trade reached $18.2 billion. So as Texas leads the nation in employment and housing growth, retailers are continuing to open new stores throughout the region. Retailers will be prudent and create contingency plans while markets realign; however, construction on new developments should remain steady. Successful retailers are excellent operators who know how to manage changing retail environments, including a downturn. Still they want to continue to gain market share, and our team is active in designing and delivering these programs. As such, we project any change in the market in terms of retail expansion will be relatively short-term, as the markets realign. “The diversity of our economy and our affordable housing stock, will continue to insulate our market and provide a platform for retailers looking to grow their operations.” The Retail Connection | Connected Development Services expect to have nearly one million square feet under construction in 2008, of which we will deliver another 600,000 square feet developed in the DFW area. We will also launch our first development in the Katy area with a 220,000-square-foot project, the first phase of a 400,000-square-foot power center. Market has stayed in line with projections The DFW retail real estate market remains relatively healthy given the national economy. Throughout 2007, the retail real estate market remained in line with our expectations and what we have seen over the past five years. Construction from 2002 to 2006 averaged four-million-square-feet per year, which is the same it averaged the last 10 years, as well. In 2007, we saw 3.8 million square feet of new retail properties completed in the DFW Metroplex, bringing the area’s total retail market to 166 million square feet. Although this was a one-million-square-foot drop from 2006, it was, however, in line with the annual level of construction we have seen the last five and ten years. The majority of the construction this past year was led by large format retailers such as Target, which opened five stores, and Wal-Mart, which accounted for 25 percent of this past year’s retail construction. In 2007, DFW saw positive absorption of 3 million square feet, extending our 10-year streak in this context. And occupancy remained steady at 89.5 percent, which is not only in line with the past 5 and 10 years, but also the past 15 and 20 years. Retailers respond to emerging trends The emerging property trend we are seeing is an infill movement with consumers looking to live closer in and retailers looking to serve this inbound customer base with urban projects. Take a look at the NorthPark trade area. NorthPark Centre has almost doubled its space to more than 1.9 million square feet, making it one of the largest and most successful malls in the U.S. And in the same trade area, there’s another 1.5 million square feet in motion with various mixed-use projects including Park Lane Place, The Glen at Preston Hollow, Lake Highlands Town Center and Timbercreek. With the continued premium we all place on our time and macro factors such as gasoline prices, we are going to continue to see a new urbanism whereby this infill trend continues for years to come. Enthusiasm for Texas market unwavering In general, retailers are cutting back their Open-To-Buy across the country; however these cut-backs are not uniform across all markets. In the strongest markets, such as Texas, we will continue to see retail growth as these chains leverage their existing infrastructure, marketing, and administration. Texas is not immune; however, it is insulated in economic diversity, affordable housing stock, and annual job creation [DFW and Houston, at 80,000 and 100,000 jobs respectively.] Retail has always been a dynamic industry in SW We continue to see innovation across the board in the Texas retail markets. Stores are adjusting their sizes to fit new urban projects and the complexion of these projects is changing as retail, office and residential components are mixed together. A good example is Timbercreek, a new 44-acre apartment community at Skillman and Northwest Highway, where a new Wal-Mart Supercenter will be built over the Sam’s Club. Entertainment continues to prove itself as a valuable drawing card. Accordingly, we are seeing restaurants becoming important drivers for retail centers. Forever, retailers restricted the amount of restaurant space that could go into projects for a variety of reasons; whether it was the impact on their parking, or their visibility, the restaurants simply were not welcome. Today, retailers and developers have learned how to balance the opportunity that comes by virtue of a well-developed mix of restaurants in their projects. We are going to continue to see restaurants have significant influence going forward. Texas is one of the top restaurant markets in the country where dining is a $40 billion dollar industry, a third of which is concentrated in DFW. The Retail Connection identified this trend several years ago and the Connected Development team has actively integrated restaurants into all projects accordingly. Arlington Highlands, for example, which was recognized by the Dallas Business Journal as the Best New Retail Development in 2006, has over 25 restaurant and entertainment concepts spread throughout the 800,000-square-foot center. Another innovation that we see continuing is the importance of scale; retail projects are becoming ever larger and increasing their relevance to the market, particularly in suburban trade areas. In addition to overall size, we also will continue to see more projects going upscale in response to increased incomes, concentration of wealth, quality retailers and rising construction costs. Our construction, rental, occupancy, and absorption trends should all stay in line in 2008. There will certainly be some pull-back; however, market drivers and fundamentals will keep supply and demand in balance. Texas will continue to be among the strongest places in the country to be in retail real estate. Innovative retailers and developers will continue to provide a dynamic marketplace and more coming-soon signs throughout the state.