Retailers are racing to secure space in North Texas’ fastest-growing suburbs, even with climbing construction costs and soaring rents.
In Prosper, Celina and Melissa, asking rents for new retail space have surged from the mid-$30s per square foot five years ago to as high as $50 per square foot today, a jump of about 42 percent, Bisnow reported, citing a Weitzman report.
That works out to an annual base rent of about $100,000 for a 2,000-square-foot space, or around $8,300 per month. The price tag means small independent businesses won’t be a major part of the retail landscape in these fast-growing suburbs, Bisnow said.
The spike is traceable to rising construction costs that developers say is forcing their hand, said Weitzman’s Ben Terry.
“The only way a developer can make these projects pencil is, unfortunately, by raising the rents,” Terry told the outlet.
Weitzman recently delivered the first 36,000-square-foot phase of The Creeks at Celina, a shopping center less than a half-mile from Dallas Parkway. Bids for the project’s second phase came in roughly 20 percent higher than the first, Terry said, adding pressure to push rents higher.
Despite the sticker shock, the appetite for space hasn’t slowed. Household incomes in Celina and Prosper — averaging $156,000 and $187,000, respectively — have given retailers confidence that consumers can handle higher price points. Around The Creeks at Celina, average household income tops $238,000, according to Weitzman.
Regionally, limited supply and surging demand drove annual rent growth of 4.3 percent across DFW during the third quarter, per Matthews. The metro’s average asking rent of $25.15 per square foot lags the wealthy northern suburbs, where Frisco leads at just over $40 per square foot and Allen and McKinney each top $30.
A Coda Consulting Group report found that new retail construction in Prosper and McKinney commonly leases in the mid- to high-$40s per square foot, with restaurants exceeding $50. Vacancy rates remain tight — under 3.5 percent in McKinney and Frisco, and 4.3 percent in Allen.
Developers blame rising material and labor costs — worsened by trade restrictions and immigration curbs — for the pricing pressure. Nonresidential construction costs are up 2.6 percent year-over-year nationwide, according to the Bureau of Labor Statistics.
Grocery anchors like H-E-B, Kroger and Walmart are increasingly buying their own sites to sidestep soaring rents.
Coda’s Coni Hennersdorf said construction remains strongest in areas with available land. Allen, McKinney and Frisco together have about 900,000 square feet of retail under construction — 13 percent of the DFW pipeline.
To offset costs, developers are leaning more on restaurant tenants, which generate higher sales and can absorb higher rents. Chad Long, VP of commercial development at Wilks Development, said restaurant-heavy projects like Frisco’s multibillion-dollar Firefly Park are designed for affluent consumers.
Weitzman is planning another 17,000-square-foot retail project in Flower Mound as part of a larger mixed-use development, with a $50 per square foot rent “floor.” Terry said tenant demand there has been “fantastic.”
— Eric Weilbacher
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