From Houston’s diverse economy to Dallas’s thriving selectivity, Austin’s tight market dynamics, and the Rio Grande Valley’s cross-border prowess, each region of Texas offers a tapestry of opportunities for investors, developers and retailers alike. By embracing innovation, sustainability and community-centric approaches, stakeholders can navigate the complexities of the retail landscape, seize emerging opportunities and chart a course towards long-term prosperity in the vibrant markets of Texas. ‘Be agile, innovate’ to succeed in Houston’s retail sector Houston’s retail landscape remains resilient in the face of change, characterized by a low vacancy rate of 5.2% and stable rents. This strength is attributed to a myriad of factors, according to industry experts. “Houston’s population has been steadily growing, fueled by a combination of job opportunities, affordable housing and a diverse economy. Key sectors such as energy, healthcare, manufacturing and technology are driving this growth,” said Nathaliah Naipaul, CEO and partner at XAG Group. “As the population expands, the demand for retail goods and services also rises, which in turn strengthens the retail market.” Infrastructure enhancements, including improved transportation networks, further bolster the sector by improving accessibility to retail centers, Naipaul added, noting that XAG Group exemplifies this adaptability by prioritizing sustainability and curating unique shopping experiences.
“I believe vacancy remains low because there is a lack of new quality space being constructed,” said Jonathan Hicks, principal at Edge Realty Partners. “The reason there is a lack of new construction is due to high costs of construction and high interest rates; it is very hard to build anything right now with affordable rental rates.” Hicks argued that this, along with rising labor and inventory expenses for existing tenants, has contributed to stable rents as landlords navigate this challenging terrain. Despite a recent uptick, the vacancy rate remains healthy. Hicks viewed this as a temporary phenomenon, a result of squeezed margins for retailers. Conversely, Naipaul interpreted it as a sign of a balanced market.
“This stability is reassuring for retailers, landlords and investors, as it reduces the risk of significant fluctuations in rental rates or property values,” she said. “Landlords and property owners may have more negotiating power when leasing out retail space. Like us at XAG Group, we see many maintaining diverse tenant mixes, investing in property maintenance and improvements and staying informed about local economic and market trends.” Looking ahead, retail development continues with 3.2 million square feet underway. While some projects may encounter delays at the permitting stage, Naipaul suggested that developers perceive opportunities driven by robust employment rates and consumer confidence. Hicks believed much of this construction is user-driven, with developers exercising caution due to affordability concerns. “Developers are telling me it is almost impossible to build space that is sustainably affordable to tenants,” he said. “I heard recently that a developer was just happy to have a tenant move into their project and build out the space – their risk of failure was much higher than normal, but the landlord would at least have a built out space in their retail center that may be more attractive to the next tenant.”

The rise of e-commerce necessitates adaptation for traditional retailers. Hicks observed stores evolving into fulfillment centers and enhancing
customer experiences through interactive displays and vendor-led classes. Naipaul highlighted XAG Group’s strategy of extending the shopping experience outdoors with seating, gardens and event spaces, fostering a more inviting and community-oriented atmosphere. “Multi-functional outdoor spaces accommodate various activities like markets and fitness
classes, with amenities such as Wi-Fi and charging stations,” Naipaul said. “By integrating outdoor areas, retailers differentiate themselves, appeal to a broader demographic, and enhance the overall retail experience, emphasizing sustainability and eco-friendliness.”
For long-term success, stakeholders must adapt to evolving consumer preferences, embrace technology and prioritize sustainability, Naipaul suggested. This entails integrating mobile payments and augmented reality, along with strategic location selection and tenant mixes that cater to food, beverage and entertainment desires.
“Retailers should be agile, innovate in response to consumer trends and invest in sustainability practices to attract eco-conscious shoppers,” Nailapul said. “By focusing on these strategies, businesses can navigate the evolving market and position themselves for long-term success in Houston’s retail sector.”
Hicks anticipated further retail closures due to rising interest rates on business loans. He saw opportunity in repurposing existing buildings and acquiring failed businesses’ space at a discount. A key takeaway for investors, according to Hicks, is the current disconnect between owners and tenants. “I have tenants who are prepared to expand, but the majority require purchasing rather than leasing,” he said. “In most cases, the purchase prices are at or above market, but so many owners continue to wait for a lease. Many owners are also waiting to see what happens with interest rates, but I’m being told by many sources that rates are not expected to change much, if at all, before the end of this year.”

‘Momentum’ describes retail sector success in Dallas

Dallas distinguishes itself with a thriving retail market, defying challenges encountered by other sectors. Robert Franks, managing director at JLL Dallas, attributes this resilience to a burgeoning population and the proliferation of grocery stores, particularly with the entrance of H-E-B. Sun Belt markets like Dallas benefit from high population growth and historically low vacancy rates. “The fundamental principles of supply and demand are at play here,’ Franks said. “With vacancy rates at an all-time low, costs have increased, leading to record-high rental rates. We anticipate this trend to persist as the baseline market has been fundamentally shifted. Landlords now have the luxury of being selective with tenants, as quality vacancies attract numerous options.”
While advantageous in the short term for landlords, Franks noted that excessively high rents could strain tenants in the long run. Investment opportunities abound across various retail property types in Dallas. While larger assets are scarce, single-tenant buildings and smaller strip centers offer promising entry points. “Now is a great time to look at well-placed assets with lower rents that can be repositioned long-term,” Franks said. The rise of e-commerce has catalyzed the transformation of older malls. Malls with prime locations undergo redevelopment into mixed-use hubs, integrating multi-family housing and entertainment options. Notable examples include Collin Creek Mall, Willow Bend and Valley View Mall. “Landlords are fighting to keep up with changing customer behavior,” Franks said. “In Dallas, Class A malls continue to experience high demand, while Class B and C malls struggle to compete. These older, outdated assets are now ripe for redevelopment into mixed-use, multi-family, or entertainment centers.” Savvy investors and developers leverage data analytics to assess location suitability and shopper demographics. This data, encompassing demographics, competitor performance, and even cell phone usage, is indispensable for making informed long-term real estate decisions. “The growth trajectory of the Dallas retail sector remains strong, fueled by the region’s status as one of the fastest-growing metroplexes in the U.S.,” Franks said. “Momentum is expected to continue, with asset performance and value creation opportunities here being as strong as ever.”

‘Varied opportunities’ available for retailers, developers in Austin

At the end of 2023, Austin’s retail sector boasted an impressive 96.8 percent occupancy rate, a testament to its resilience. “The city’s zoning and planning regulations have historically limited the availability of new development spaces, creating a supply scenario that is markedly lower than demand,” said DeLea Becker, owner, founder and broker at Beck-Reit Commercial Real Estate and Beck-Reit Asset Management. “This regulatory environment, coupled with Austin’s rapid population increase and its status as a technological and cultural magnet, has sustained low vacancy rates and high demand for retail space.”

“Despite being underbuilt, Austin boasts a dense and expanding population,” echoed JD Torian, director at Cushman & Wakefield. “The purchasing power of young professionals plays a significant role in sustaining a resilient retail market. Additionally, tourism contributes to the market’s strength. Austin remains affordable for buyers, making it an attractive destination for both residents and visitors alike.” Becker described a landscape where landlords hold sway, with high demand leading to competitive leasing dynamics and rising rental rates. “This means navigating a landscape where they might have to absorb a larger portion of the build-out costs themselves, which could affect their budgeting and design choices,” Becker said. “Tenants must be financially prepared to invest more upfront in their leased spaces, which underscores the necessity for thorough financial planning and possibly seeking out alternative funding sources for their fit-outs.”
For investors, Torian emphasized the importance of considering longterm tenant mix and prioritizing sales performance over aggressive rent increases.
“Attempting to raise rental rates without robust sales could jeopardize businesses,” he said. “To achieve success, investors must comprehend and prioritize the tenant mix within the local retail market. Striving for a 10 percent rental factor may not align with tenants’ needs and could ultimately backfire for landlords, who risk inflating costs solely for the
sake of higher rents.”
The recent elimination of parking minimums by the Austin City Council marks a significant change, according to Becker, who saw it as ushering in a new era of denser, more efficient development. “This shift also revitalizes older buildings and smaller empty lots previously hindered by stringent parking requirements, allowing them to be repurposed into previously disallowed retail, offices, restaurants, event spaces, etc.,” Becker said. “By reducing the need for extensive parking, these properties can now contribute more actively to the urban tapestry, promoting a diverse and innovative use of space, increasing value and demand for landlords’ buildings and opening up new opportunities for architects and developers.”
Looking at specific property types, Becker highlighted the unique opportunities each presents. Freestanding buildings offer high visibility and attract stable tenants. Neighborhood centers benefit from foot traffic and are less susceptible to economic downturns. Power centers expand with pad sites for additional tenants. Malls transition into mixed-use spaces with entertainment and leisure options. Outparcels and pad sites are developed to optimize space for quick-service businesses. “For investors, understanding these distinctions and trends is key to capitalizing on the varied opportunities within Austin’s retail landscape, from stable neighborhood centers to innovative uses of traditional mall spaces,” Becker said. “An investor’s short-term and long-term goals tend to guide which retail asset type they favor when making investments and planning developments.”
Austin’s retail sector presents a high-stakes, high-reward environment, she added. While Becker acknowledged potential short-term market fluctuations, she emphasized the city’s long-term potential, driven by a resilient consumer base. Investors and developers are advised to adopt a long-term perspective, brace for short-term headwinds and seize the opportunities within this dynamic market. ‘Vibrant retail environment’ draws shoppers to McAllen The Rio Grande Valley has emerged as a major international trade hub, attracting a diverse range of retailers and investors. “The opportunity is in the growth of quality jobs, education, healthcare and lifestyle of which McAllen is leading the way on all counts,” said Mike Blum, partner at NIA Rio Grande Valley. “McAllen, Texas, stands out as a powerhouse city and the epicenter of the Rio Grande Valley, boasting impressive retail sales for 2023.”
The gross sales tax for the McAllen MSA was upwards of $10.6 billion, Blum shared. “By capitalizing on the region’s diverse shopping venues, increased foot traffic, cultural exchange and logistical advantages, retailers can position themselves for success in this dynamic and rapidly evolving market,” said Rebecca Olaguibel, Director of Retail and Business Development for the City of McAllen. “With the rise in international trade, there has been a corresponding increase in foot traffic from both local residents and international shoppers. This creates a vibrant retail environment and provides retailers with a larger customer base to target.” McAllen’s reputation as a premier shopping destination is attributed to several factors, according to Roger Stolley, associate at NIA Rio Grande Valley. Easy access from Mexico, a modern airport with convenient connections and a renowned shopping mall (La Plaza Mall) position McAllen as a shopping paradise. The city also boasts a vibrant entertainment scene, with a convention center, performing arts spaces and a symphony orchestra. While historically reliant on Mexican shoppers, McAllen’s retail sector has diversified, although Mexican visitors remain a significant customer base, Blum shared.
“Many of the travelers from Mexico have been banking in McAllen for generations,” he said. “They come to visit their money.” When they choose to spend it, shoppers in McAllen can choose from everything from high-end luxury brands or budget-friendly deals. “McAllen actively promotes itself as a shopping destination through various marketing initiatives and promotional campaigns,” Olaguibel said. “These efforts help raise awareness of the city’s retail offerings and attract shoppers from neighboring regions.” Looking ahead, the expansion of international bridges, growth in warehousing and manufacturing and the addition of the UT Health Cancer Treatment Center solidify the Rio Grande Valley’s position as a dynamic trade and commerce destination. This unique blend of factors creates an attractive environment for retailers and investors seeking to capitalize on the region’s potential.