Terry Montesi

Last week, I was asked to present a forecast for the North Texas area to the Greater Fort Worth Real Estate Council, and given the prompt of, “Where is the Tarrant County retail real estate market, and where is it going?” Here is a summary of my thoughts on the topic. At the very least, I hope you find it to be thought-provoking. Feel free to reach out to me with any questions you may have.

First, it is all about jobs. The unemployment rate appears to be stuck above 8 percent for the foreseeable future, which will hold back the consumer and the housing market in the United States from returning to historic norms. In 2011, both Consumer Confidence and Consumer Sentiment were up materially from 2010, but continue to be well below the average of the last 20 years. This led to an increase in chain store sales of 4.7 percent.

As retailers contemplate where to focus their limited U.S. expansion, they are targeting Texas and DFW for several reasons. First, Texas is the only area in the country that has regained 100 percent of the jobs lost during the recent recession, versus only 28 percent regained in the United States overall. The fact that three of the top seven U.S. cities for job growth are in Texas, places the state atop many retailers’ expansion lists. DFW, consistently in ranked No. 1 or No. 2 in the country for job growth, typically tops the list of Texas markets. Tarrant County continues to strengthen its relative position in the state, with standout population growth in 2011 of 2.52 precent, versus 1 percent in the U.S. overall.

Another major trend we see is the bifurcation of the retail economy, with luxury brands and other retailers catering to an affluent and educated customer experiencing strong sales, versus those retailers and consumers caught in the middle continuing to struggle. This bifurcation is also present in the property world, with the strongest submarkets and properties experiencing strong rent increases and retailer demand, while B and C properties struggle to hold onto their position.

Other trends I discussed were shrinking retailer prototypes, in part due to retailers’ online presence. Another noteworthy development is that our retailer customers have strengthened their balance sheets and streamlined operations for profitability in the new economy, and many of the better retailers have focused store expansion in Asia and Europe awaiting political and financial market stability in the United States.

As always, retail is the most dynamic of the commercial property sectors and requires keeping a constant eye on the evolution and the changing needs and desires of the American consumer.