Friday, March 22, 2013
Downtown Dallas retail space still lagging as residential and office population grows
Downtown Dallas’ new Mercantile Continental apartment building has 203 tricked-out rental units and a posh ground floor lobby lounge and spa.
There’s also 5,000 square feet of store space fronting Commerce Street, just a block from one of downtown Dallas’ new signature parks.
You would think that rounding up a few retail and restaurant tenants for such a choice location would be a snap.
But there’s still twice that much empty retail space across the street in the recently renovated Mercantile National Bank building.
Downtown Dallas has the highest retail vacancy rate of any North Texas business district.
What gives with this?
More than 100,000 people work in the downtown area. And in the last 15 years, developers have added close to 8,000 central business district residential units.
With all those daytime workers and thousands of new overnight residents, why is it still such a heavy lift to fill up a couple hundred thousand square feet of shop space?
That’s about the same retail space as in the largest suburban Wal-Mart Supercenters.
John Crawford, who heads the economic development group Downtown Dallas Inc., blames fractured property ownership, in part, for holding back the area’s retail potential.
“That, coupled with the hit of the recession at about the same time we began to tout legitimate critical mass, have been major factors,” Crawford said.
Real estate developers and downtown business execs admit they are surprised that the effort to attract more retailers has taken so long.
Jim Truitt, senior vice president with Forest City Texas — which redeveloped downtown Dallas’ Mercantile properties — said his firm targeted some of its shop space in the Mercantile bank building for tenants that would complement the flagship Neiman Marcus store next door.
“With the recession, this was not possible,” Truitt said. “So, we are looking at other ideas today.”
Headington Cos. recently leased several shops near its Joule Hotel on Main Street to several high-end retailers and restaurants.
But even with those successes, retail real estate firm Weitzman Group estimates more than 30 percent of downtown’s shop spaces are empty.
Efforts to bring a high-quality grocer and national name apparel firms downtown have moved at a glacial pace.
“We are starting to get more calls from retailers, and it’s starting to happen,” said real estate broker Jack Gosnell with UCR Urban. “I think we are going to start seeing it trickle in, but it won’t be overnight.”
Gosnell said the housing population in the downtown area is just now getting large enough to justify significant increases in retail space in Dallas’ core.
“If you look at other cities, like Los Angeles, they had to get about 15,000 people before downtown retail takes off,” he said. “To get soft goods retail, you need over 20,000.”
Road to success
Downtown’s retail space would also be an easier sell if building owners took the effort to update some of the properties, Gosnell said.
“A lot of the space downtown just isn’t ready to go,” he said. “It’s archaic, almost archeological dig-type space.
“It has antiquated mechanical systems and storefronts.”
Retailers who are used to breezing into suburban strip malls are put off by the old downtown buildings.
That may be true, but the retail business is all about residential rooftops.
And with 200 more apartments now opening their doors downtown and hundreds more residential units on the way, retailers will eventually be shopping for a downtown location.
“We would classify retail downtown as on the road to success,” Crawford said.