One of the most frequently asked questions we get is: “Why isn’t x (enter your favorite national restaurant or retail chain here) coming to Lubbock?” This question, along with many others, pushed us to get some answers. We reached out to someone who would have a lot of insight into the Lubbock restaurant and retail market: Commercial Real Estate Developer, Rajeev Gill, CEO and President of Gill Holdings. He graciously allowed us to sit down and pick his brain. Here are his thoughts on some of your biggest questions:
What are the population thresholds that businesses factor in when deciding whether or not to open in Lubbock?
Although some companies have minimum requirements (for example: Dave and Busters), population thresholds are not an absolute determinant for a company’s decision to enter a new market. Speaking anecdotally however, the population thresholds for different retail and restaurant chains seem to be 250,000, 350,000, 500,000, and above 750,000. A company’s market analysis is generally rooted in Central Place Theory, which is a derivative formula that analyzes demand based on several variables. Each company has their own process when looking at a particular market but generally speaking, they take a very actuarial approach using variables such as population, income levels, location, traffic counts, transportation costs, etc.
Do businesses come to you or do you solicit them? How do you decide who to pursue (what factors)?
Both. On single tenant projects, I am either working with one of the companies I have an exclusive development contract with or a company approaches me because they want to be located on a piece of land I already own. I also have companies approach me that want me to scout locations, purchase the land, and pay for any improvements then lease the building back to them. In these cases, to oversimplify, I will run an internal analysis and estimate what their rent will be once the building is completed to give them some idea of what their rent factor will be. Because I am working within the confines of their budget (i.e. how much rent they are willing to pay), the two main factors in determining rent are land acquisition cost and building cost. In the case of multi-tenant or raw land in high growth areas, we reach out to tenants via a web based directory or a leasing broker. If the prospective tenant decides the location is economically feasible, we begin the negotiation process of the lease.
Explain why it’s not that simple to just bring a restaurant or retail store here to Lubbock.
It’s just simple supply and demand (mainly demand). Most companies have a long due diligence process if they are not already looking in a particular area. If their internal analysis indicates that Lubbock (or any other market) cannot support a projected sales level, they will not go into that market. Most companies use very sophisticated software that is surprisingly accurate in regards to revenue estimates. There are other factors such as the availability of labor (restaurants in particular)*, economic conditions, and cost of funds, but the primary factor is projected profitability.
* For more on the Lubbock restaurant hiring issue, check out this article.
What are typical land prices in Lubbock? Where are the “hot spots” here?
For commercial land in desirable areas, the prices range from about $15/foot to as high as $27/foot. Hard corners are generally the most expensive for obvious reasons. The most desirable areas right now are Southwest Lubbock (98th Street between Slide and Quaker) and Milwaukee Ave between 34th and 82nd. The West End Development that Graco is doing is also a very desirable area and of course anything adjacent to Texas Tech (particularly on University between 4th and 19th). There are other good areas that are still a little green but most retailers are looking in the previously described areas.
Why are there no new businesses popping up on the east side of town?
From a tenant (i.e. company’s) perspective, there is simply no demand there. Population growth is declining and the city center has been moving West/Southwest for a long time now. The main demand out there seems to be for medical related businesses.
Why do businesses sometimes purchase land, but never build? Or take a very long time to build? A la H-E-B.
Several reasons. They might have future plans to build there but factors such as macroeconomic trends or the cost of funds are not optimal. Sometimes they are buying the land as an insurance policy to keep competitors out of a particular area/market. Other times, they have every intention of putting in a location but the process just takes a long time. In the case of HEB, I have no personal knowledge of their plans but the land they purchased will only appreciate in value so it’s a win/win situation for them. That area is a bit saturated with grocery stores with the addition of the Walmart on 114th & Quaker and 98th & University, so my personal feeling (which is not based on any tangible analysis) is that they won’t enter the market at that location.
LITLites – we are interested in hearing your thoughts. What questions do you still have? Lubbock is ever growing and evolving. It is our job as citizens to support these businesses – word of mouth speaks volumes (pun intended) in our community. If you experience good service or have a great time somewhere, let your friends know. We are proud to be your #1 resource for what’s coming to Lubbock!