Retail Thrives in Austin Despite High Costs and Barriers to Entry

BY BRANDI SMITH

The retail sector in Austin, Texas, is experiencing needed growth due to the city's booming population and unmet demand for retail space. The city’s population growth, particularly on the outskirts in areas like Kyle, Hutto, Liberty Hill and Georgetown, is a positive factor driving demand for retail space. However, there are also limiting factors such as high overall costs for land, vertical and horizontal construction, higher interest rates, and barriers to entry in certain markets due to lack of infrastructure, according to Adam Zimel, Principal of Endeavor Real Estate Group.

“We really are not seeing much in the way of first-generation retail construction projects due to those higher costs,” Zimel explained, referring to larger traditional power center and soft goods projects. “Most secondgeneration space has been absorbed, leaving next to no junior anchor boxes available.”

There are exceptions, especially in suburban areas, such as Kyle. Endeavor is currently leasing pad sites at Dry River District, shadow anchored by Costco, EVO Entertainment and The Home Depot. Across I-35 in Endeavor’s Amberwood Ranch development, pad sites are available for lease or sale.

Zimel did share that most new retail projects are smaller in nature, primarily led by pad and small shop tenant expansion, which have been the most economically viable. Anchor expansion has primarily been in the grocery category, with H-E-B and Costco remaining the primary anchors expanding in this category. However, soft goods expansion is also starting to take place, with retailers such as Target, TJX, Hobby Lobby, Academy, Floor & Décor, Five Below and Ulta actively working on deals.

The food industry continues to dominate the retail sector, with many restaurants adapting their prototypes to cater to both consumer habits shifting to convenience purchases and higher overall construction costs. Some have turned towards alternative product types, such as end caps versus freestanding units, pick-up windows, consolidating footprints or simply opening fewer units. The demand for restaurants has outpaced that of grocery stores, indicating that consumers eat out more now than ever.

“Retail has gained favor in the investor and capital market as it has proven resilient, even amidst growing online sales. Last year marked the first year in over a decade that store openings outpaced store closings,” Zimel said. “Sales continue to remain positive, year over year. Consumers are paying a premium for products and services given inflation, but money is still being spent regardless of price increases.”

Consumers are spending their money at places such as The Domain, a mixeduse development in North Austin that includes a variety of retail, dining and entertainment options. Another popular destination for shopping and dining is South Congress Avenue. Known as "SoCo," the retail offerings on South Congress Avenue range from unique local boutiques to larger, well-known brands. Visitors can find everything from vintage clothing and jewelry to home decor and furniture. Many of the shops on South Congress feature locally made or sourced goods, giving shoppers a taste of Austin's vibrant arts and culture scene.

“Those specific projects and areas are destinations sought out by local residents and visitors to town,” said Zimel. “Many of these areas attract emerging brands and established high end brands. For retailers, these locations serve to drive sales and also grow their brand presence and cache.”

Zimel noted that these areas and projects offer unique shopping and food options, but they are no different from H-E-B building a unique experience on Lake Austin Boulevard or finding an Australian take on breakfast at Proud Mary Café.

“I think they are overall reminders that the consumer still desires to gather in activated environments,” Zimel said. “Whether shopping or dining, people desire to get out of their residence and have an experience that they can’t get at home.”