North Texas real estate market forcing retailers, restaurants to squeeze into smaller spaces

Lower supply and higher prices are causing retailers and restaurants to get creative as they squeeze into North Texas real estate.

According to Bob Young, executive managing director with The Weitzman Group in Dallas, the overall occupancy rate at North Texas shopping centers is more than 90 percent and growing, and the lack of supply is causing a rise in lease prices.

“It’s forcing retailers of all sizes to up their game to get deals done quicker or pay rent that’s higher than occupancy costs they usually operate in,” Young added.

In response, many companies are shrinking their footprints, building stores that can fit into spaces as small as a few hundred square feet. In the case of Philadelphia-based Philly Pretzel Factory, stores can range from 100 to 2,500 square feet with drive-thrus.

“For us, we see an opportunity to have 60-plus locations across (North Texas), and we’ll be in many different types of locations,” said Tim Monaghan, Philly Pretzel Factory’s chief development officer. The concept said in December it plans to build dozens of locations in Dallas-Fort Worth, but has not opened its first location in the region.

“It makes sense for us to be very flexible with different types of opportunities, because we have some small stores that do well above the chain average,” Monaghan added.

Shrinking real estate is causing some companies to scale back the services they usually offer at their brick and mortar locations. Sylvan LearningCenters have redesigned their floor plans so some locations can exist as offices for directors and employees, while offering its tutoring and preparation services at satellite locations.

“In the center, there are still requirements of having a lobby, director’s office and bathrooms,” said Georgia Chasen, Sylvan’s director of franchise development. Sylvan, based in Baltimore, has 13 offices in North Texas that range from 1,000 to 2,400 square feet.

“But the franchisees don’t need to have a group instruction room, because you can offer instruction at a library or community center as a Sylvan satellite center,” she added.

Smaller thinking is counter to the trend big retailers have adhered to over the past six or so years, said Scott Fitzgerald, chief development strategist with marketing firm No Limit Agency and a 20-year franchising veteran.

But technology like tablets that allow customers to pay without cash registers has allowed companies to cut down on space and operate more efficiently.

“Now (companies are) realizing you don’t have to have big spaces and the economics need to make sense for the owners,” Fitzgerald said. “The trend now is to be lean and mean.”

But while retailers and restaurants are learning to serve customers in smaller spaces, visibility and signage are still key to bringing in traffic, Fitzgerald added. And that’s causing companies to reassess their marketing strategies.

“Obviously if you have a bigger space, you can get roadside visibility. When you go smaller, the signage gets smaller, too,” he said. “That’s where brands are looking to focus on digital marketing and advertising rather than relying on visibility.”

Most real estate analysts expect the small space trend to continue not just in DFW, but across the nation for the foreseeable future.

“The economy seems to be doing really well, so real estate can get tough from an inventory standpoint,” Fitzgerald said. “When the economy goes down, inventory goes up and it’s good for people looking to lease space. Right now, the industry has been doing well.”

Original post by Kerri Kezar, Dallas Business Journal, August 15, 2016. A link to the original post can be found here.