Marshall Mills: DFW’s Retail Market and ‘the WinCo Effect’

Demand from expanding retailers is lifting the occupancy rates for older centers to their highest levels in 30 years.

BY MARSHALL MILLS PUBLISHED IN COMMERCIAL REAL ESTATE SEPTEMBER 9, 2016 9:23 AM

Marshall Mills

The Dallas-Fort Worth retail market is celebrating its third consecutive year of the highest occupancy in decades, right at 92 percent. The last time the market posted such strong numbers, Murder She Wrote and Miami Vice topped the TV ratings.

A big part of our market’s strength is retail construction based on demand, meaning that projects are not given the green light until they are significantly pre-leased. Construction also is dominated by anchors, largely grocers like Kroger Marketplace and Whole Foods that open with limited space for other shops—or, in some cases, no shop space at all.

But while massive mixed-use projects like Legacy West garner well-deserved headlines, the existing retail center has proven to be one of the most stalwart performers underwriting our current market strength. As new space remains tight, demand from expanding retailers is lifting the occupancy rates for older centers to their highest levels since I entered the business 30 years ago.

But if an older center has lost its anchor—its main traffic driver—the boom in leasing may be passing it by. That’s why we can’t say enough good things about the positive impact of WinCo. The Boise, Idaho-based grocer entered our market a couple of years ago by redeveloping sites like a dead Target in Garland and constructing brand-new stores.

To give you an example of what we call “The WinCo Effect,” consider Orchard Village, a 1970s-era center on Main Street in Lewisville. The center’s anchor space, formerly a Walmart and later a Kroger, had been vacant for years. No anchor meant less traffic, which meant less cross-shopping, and that spelled doom for some of the center’s retailers. At one point, more than 30 percent of the property’s space was vacant.

Then the center’s leasing team brought in WinCo as a new anchor. The grocer demolished the vacant space and opened a brand-new 86,000-square-foot store last year. The asset management team began other improvements to the property to make sure it reflected its new lease on life. When the renovation wrapped up this month, it provided a new look to an old center that, thanks to WinCo, recently added six new small-shop tenants for a total of more than 15,000 square feet of new occupancy. On top of that, existing tenants are renewing when their leases expire, thanks to the increased business they’re seeing.

The WinCo effect can be seen throughout the region; now the grocer is even joining new centers like Presidio Junction in Fort Worth.

WinCo might even prove to be the answer to high vacancy at some of our weaker malls. We’ve recently learned that the grocer is taking an anchor position in Irving Mall, a move that likely will create enough additional shopper traffic to help it enjoy a new era of retail strength.