Hearing real estate brokers talk about the strong demand for retail space in the Austin area is like listening to real estate agents talk about the bidding wars during the frenzy of the pandemic-era housing market.
"With so much demand for retail, every space that comes available is extremely competitive, therefore driving rents to places we have never seen before," said Nick Naumann, director of brokerage in Austin for Weitzman. "Tenants are still extremely active, and you almost have to know a premier space is going to become available before it hits the market, specifically restaurants and single-tenant buildings.”
Weitzman, a full-service commercial real estate brokerage firm, recently released its midyear retail market report for the Austin region, a five-county area extending from Georgetown to San Marcos.
Not surprisingly, the Austin area's retail market "proved its ability to maintain high occupancy" as tenants continued to backfill vacancies and new retail construction projects hit the market essentially full, Weitzman reported.
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"As a result, Austin maintained its long-held position as the healthiest major retail market in Texas in terms of occupancy and balanced supply and demand," according to Weitzman's report.
Austin posted an occupancy level of approximately 96.8%, based on Weitzman’s review of retail market conditions at midyear 2024. The basically full occupancy percentage is based on a market inventory of about 52.6 million square feet.
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"The market is experiencing high levels of retail demand, especially for second-generation space as demand focuses on existing retail centers due to exceptionally low new construction," Weitzman said. "The market’s yearslong trend of limited new construction also contributed to the tight market."
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The retail market’s health reflects the strength of the overall Austin-area economy, which ranks as one of the strongest in the country, the report notes. The Austin area, with a population of about 2.5 million, ranks as the state’s fastest-growing metro area with 7.2% growth between 2020 and January 2023, according to the Texas Demographic Center.
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Space at a premium
Weitzman said examples of backfilled retail spaces this year include:
- Floor & Décor, which in the third quarter of 2024 is set to open its first Georgetown location in a 67,000-square-foot former H-E-B grocery store off Interstate 35. H-E-B moved to a new 121,000-square-foot store in Georgetown in 2023.
- Hobby Lobby, which is taking a 58,000-square-foot former Randalls grocery store space at 10900 Research Boulevard after that Randalls closed this year.
- Five Below, which is taking part of the former Stein Mart space at Round Rock Crossing. A fitness concept plans to take the rest of the vacant space.
- Crunch Fitness, which plans a midyear 2024 opening for a new 40,000-square-foot location in 1890 Ranch in Cedar Park. The location was formerly a Gold’s Gym.
- Austin Pickle Ranch, a pickleball concept, which backfilled a 50,000-square-foot former Golfsmith space on Braker Lane.
- Nike Training Studio, a new fitness concept from Nike that is opening in about 3,000 square feet of space in the Triangle at North Lamar Boulevard and Guadalupe Street.
- Desi Brothers, a specialty grocery store, plans to open next year in about 48,000 square feet of space in Round Rock Crossing at the southeastern corner of Texas 45 and Interstate 35.
- Copenhagen Imports, a contemporary furniture retailer, plans to open in about 31,000 square feet formerly occupied by an office supplies superstore in Braker Lane Crossing, a retail center at 4607 W. Braker Lane.
- Tesla will open a car showroom later this year or early next in a redeveloped 65,000-square-foot former H-E-B anchor space in the Center of the Hills near the "Y" at Oak Hill.
- H Mart, a grocery chain offering Asian specialties, is due to open next year in 23,0000 square feet at a former Savers Thrift store at 5222 Burnet Road.
- IKEA opened its first small-format location in June in the mixed-use Domain development in North Austin.
- Painted Tree Boutiques opened this spring in a 42,000-square-foot former Bed Bath & Beyond space on Brodie Lane Marketfair in Sunset Valley.
- Daiso, the Japan-based dollar store concept, backfilled the 10,000-square-foot David’s Bridal vacancy at Sunset Valley Marketfair and the 8,500-square-foot former Kirkland’s vacancy at Stone Hill Town Center in Pflugerville.
Restaurant openings
- New York-based the Dead Rabbit Bar has opened at 204 E. Sixth St.
- The Boiling Crab, a Cajun seafood concept, opened in early 2024 at the Linc, at 6406 I-35 in North Austin.
- The Guest House Social Dining & Wine Garden opened in February on the ground floor of the Northshore apartments at 110 San Antonio Street in downtown Austin.
- Modern Mexican concept Mexta opened during the first half of 2024 at 106 E. Sixth St. at Congress Avenue.
- Nando’s Peri-Peri opened this year at 1825 McBee St. in the Mueller neighborhood.
- Los Angeles-based BOA Steakhouse opened at 300 W. Sixth St. in downtown Austin.
- Doris Metropolitan, a high-end steakhouse, will be opening in a new mixed-use building at 1111 W. Sixth St.
- Tancho Japanese Restaurant plans to open in the Grove mixed-use development in Central Austin.
H-E-B dominates construction pipeline
Based on projects opening or announced for completion this year, the market is on track to see about 572,000 square feet of construction in new or expanded retail projects, Weitzman reports. San Antonio-based grocer H-E-B dominates the forecasted construction total with nearly half of the new space.
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In Pflugerville, a new 127,000-square-foot store, the third H-E-B in Pflugerville, is set to open in the second half of this year. In Austin, H-E-B's two-story, 1450,000-square-foot store that's under construction at South Congress Avenue and Oltorf Street is due to open in late fall.
The 2024 deliveries continue the trend of limited construction that began in 2017, when the market added about 640,000 square feet of new space. New deliveries have not reached or exceeded the 1-million-square-foot point since 2016, when the market added 1.1 million square feet; the high point for new deliveries was 2007, when developers added 4.2 million square feet of retail space.
"The low deliveries forecast for 2024 are especially remarkable in a tight retail market like Austin’s, with high demand, low availabilities and a vibrant economy," Weitzman's report said.
Market outlook healthy
The retail market’s strength is boosted by strong economic, population, job and residential activity, Weitzman's report said.
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The Austin metro area added more than 50,000 new residents during the U.S. Census Bureau’s most recent 12-month measurement, for a growth rate that topped 2%. The current unemployment rate for the area, an exceptionally low 3%, is considered “full employment” by economists.
And thanks to fast-growing suburban areas like Georgetown, Buda and Leander, the Austin region reported more than 15,500 single-family housing starts in 2023, and it is on track for about 20,000 new apartment units this year.
"As a result, we expect to see the area’s healthy retail performance carry though the remainder of 2024 and into 2025, especially as inflation stabilizes and the Fed forecasts an interest rate cut in the second half of 2024," Weitzman's report said.
'Lucky to be in Texas'
Weitzman's Naumann said that with strong demand and low supply, demand for retail space is highly competitive, which is driving up rents. The lack of new supply is due in part to increases in construction costs, among other factors.
"We have not seen any change in demand," Naumann said. "Austin has stayed steady and even on an upward trajectory for demand and activity. We're still one of the most competitive markets in the nation. and one of the most desirable. We're lucky to be in Texas."
This article originally appeared on Austin American-Statesman: Report: Austin-area retail market healthiest in Texas due to high demand, low new supply
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