CategoriesUncategorized

DFW brokers, developers and contractors believe commercial real estate is poised for another strong year

It may be a new year, but the Dallas-Fort Worth commercial real estate market probably won’t change much. Brokers, developers and contractors expect 2022 to be another strong year.“All indicators are that it’s going to build on the momentum we have,” said Eric Hawk, a partner at Archway Properties, citing favorable factors such as a booming population, a business-friendly climate and a robust transportation infrastructure.Dallas will be the nation’s top market for commercial real estate investment in 2022, according to the Colliers Global Capital Markets 2022 Investor Outlook. One-third of those surveyed by Colliers intend to invest in industrial and logistics assets in Dallas while one-quarter expect to invest in multifamily locally.Contractors are already scrambling to find workers and materials to keep up with the demand for new projects as the Dallas-Fort Worth construction market surges. Local construction volume will reach $36.3 billion in 2022 after topping $36.6 billion in 2021, according to projections from Cumming, a global project management and cost consulting firm.  Of those amounts, commercial construction will account for $3.81 billion in 2022, compared with $3.89 billion in 2021, while manufacturing construction will contribute $1.28 billion in 2022, up from $1.26 billion in 2021, according to Cumming.  What’s driving industrial development. The same factors responsible for overall growth drive industrial development as well, Hawk noted. So does the surge in e-commerce brought about by Covid-19. “That industry has always been in double-digit growth mode, and it has accelerated as people have embraced buying online,” he said.
As retailers sell more products, they want bigger warehouses and to be closer to customers. “People realize they need more warehouse space to hold more inventory, so they have more flexibility at times when there are disruptions in the supply chain,” Hawk said.Manufacturers are opening facilities as well. “We’re seeing some manufacturing businesses come back to the U.S. to get their products closer to the consumers,” Hawk said. “There’s been a lot of positives resulting in increases in industrial demand.”A lot of space will be coming out of the ground Dallas-Fort Worth’s central location makes it ideal for companies that want to serve customers across the nation, said Becky Thompson, a principal at Lee & Associates. “Anyone who is growing is looking here,” she said.Thompson and her firm were so busy helping industrial tenants find space in 2021 that she could not recall a busier year. She expects 2022 to bring more of the same. “There’s going to be a lot of space coming out of the ground and we’re likely going to top what was built in 2021.”Year to date, as of December, 21.7 million square feet of industrial space had been delivered in Dallas-Fort Worth and the region led the nation with 61.1 million square feet underway, according to a CoStar Analytics industrial outlook for 2022. To put the scale of construction into perspective, CoStar noted that Dallas-Fort Worth represented 12% of all industrial construction in the United States.
“Our bid calendar has never been fuller,” said Mark Duvall, vice president at Bob Moore Construction. The contractor has been busy building industrial facilities, multifamily properties and other projects.Responding to rising construction costs and materials delays Duvall expects the local market to remain strong in 2022 despite rising construction prices and materials delays. Bob Moore Construction, for instance, aims to keep projects on time and within budget by ordering materials sooner.The contractor also builds secure storage yards on-site so it can store in-demand materials like steel, dock equipment and bricking systems. “Normally, we wouldn’t take delivery for months but we’re doing it now, so we have it and can stay ahead of the price increases,” Duvall said.Duvall does not see construction slowing and is optimistic about the year ahead. As of now, it seems like the Dallas-Fort Worth commercial market could be as strong in 2022 as it was last year.

Dallas Business Journal. (2022, January 17).  DFW brokers, developers and contractors believe commercial real estate is poised for another strong year [News post]. Retrieved from https://www.bisnow.com/dallas-ft-worth/news/economic-development/dfw-121-event-110786If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

There’s Still Plenty Of Gold To Be Found At The End Of DFW’s ‘Rainbow Highway’

Some say you’ll find a pot of gold at the end of the rainbow. Those involved in commercial real estate in the Dallas-Fort Worth metro claim to know differently.

“I say it’s at the end of 121,” McKinney Mayor George Fuller said.

Investment, development and economic opportunity are flourishing along the state highway running through Collin County, the nation’s fourth-fastest-growing county and home to North Dallas’ most affluent suburbs, including Allen, Plano, Frisco and McKinney.

Home to regional and national hubs for Toyota, UPS, FedEx, Southwest Airlines, Motorola and the Dallas Cowboys, among others, Collin County has become a magnet for big-name companies and investment and people.

And panelists at Bisnow’s Oct. 28 Innovation (121) Corridor event say the boom times along and near the artery referred to as “rainbow highway” are far from over, with McKinney alone counting 115 square miles of available and developable property, Fuller said. McKinney already has 68 acres under development and a roster of recent wins such as banking firm Independent Financial’s plans to triple the size of its campus in the Craig Ranch development and the $750M Craig International project at District 121 anchored by Kaizen Development’s 200K SF eight-story office tower.

“We’ve done work all over Texas, we’ve done Oklahoma, Kansas, Arkansas, things like that. But at the moment, almost the entirety of our work is focused in the DFW area, and primarily in the Collin County area, because that’s where most of the expansion and growth is happening,” McRight-Smith Construction President Andrew Smith said. “There’s a lot of infill work to be done. There’s a lot of population-driven growth. And we see the businesses following them … There are still lots of opportunities to build for lots of different types of groups.”

Smith said there is no end in sight for new development along the 121 Corridor, with a number of companies already planning projects for three to four years from now and a pipeline that shows no signs of tailing off. Some of the long-term planning is in response to rising materials costs, which are extending timelines further into the future. But the bulk of the momentum is being driven by population shifts in a market that is growing by 100 residents daily, making way for a stream of employment centers, housing, medical offices and retail.

“You guys will probably read three articles today in a newspaper that tells you retail is dead. Retail is not dead, it’s just evolved,” he said. “You can’t Amazon a haircut or an ice cream cone. There’s going to have to be somewhere to get stuff.”

Most panelists predicted Collin County’s run would last until at least 2030. Kaizen Development Partners CEO Derrick Evers said his company’s analysis uncovered numerous gaps and opportunities along the corridor, including a relative dearth of Class-A office space.

“There’s a tremendous opportunity because there’s a lot of gaps to be filled,” Evers said. “And then you want to make 24-hour communities, to have an office where you have daytime traffic because if you’re a retailer, you can’t survive on nights and weekends alone, you do need that full cycle. To the extent that we can bring housing, bring daytime traffic with office, where you have the retailers here, it becomes this community.”

Allen-based JaRyCo Development President Bruce Heller said the attraction of developing in Collin County comes down to local governments working as partners instead of adversaries. That means not just understanding economic development, he said, but elevating the importance of good public schools, strong transportation links, and other public amenities to the young, well-educated families flocking to the county.

“You got these great cities — Allen and Plano and Frisco and McKinney — that all understand business … and they know the challenges that come with development,” Heller said. “I just think it’s sort of a perfect storm of everything coming together.”

That’s the mix, in part, that brought the AT&T Byron Nelson Golf Tournament, which Salesmanship Club of Dallas President Mike McKinley called the PGA Tour’s premier charitable fundraiser, to Collin County this year after seven decades in Dallas County. The tournament, supporting the Momentous Institute, held its first event at TPC Craig Ranch in McKinney in May.

“We walked into a room with about 25 leaders of the McKinney community, the business community, the city of McKinney, and within about 15 minutes, our tournament director and I kind of looked at each other and we knew we were home,” McKinley said, adding the charity, which fosters social-emotional health for children and families, netted $5.5M in its first year despite PGA limits on the number of people that could be hosted due to the coronavirus pandemic.

Independent Financial Chairman and CEO David Brooks said the ability to land prestigious events and the bustle of activity up and down the corridor testified to the intensity of interest in the area, which he called a national phenomenon unmatched by anywhere else in the country. Brooks noted he is speaking to people around the country interested in investing in the area.

In an environment as rich with capital as he has seen in his career, he said, opportunities still abound: “Take a drive [and] next time don’t pay attention only to what you see, all the buildings, and pay attention to all the land that is still undeveloped. The momentum here is going to continue on, I think, for 10 years into the future.”

BizNow. (2021, November 4). There’s Still Plenty Of Gold To Be Found At The End Of DFW’s ‘Rainbow Highway’ [News post]. Retrieved from https://www.bisnow.com/dallas-ft-worth/news/economic-development/dfw-121-event-110786

If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

Dallas: The ‘Third Coast’

Historically, gateway markets such as New York, Boston, and San Francisco have positioned themselves as the “gold standard” for international investors to deploy capital. Major companies focused on these cities due to talent, limited supply constraints, and an educated labor force.

Billy Gannon, Transwestern

Billy Gannon, Transwestern

However, if 2020 showed anything, it pointed to these cities’ potential flaws, including massive shutdowns, high taxes, and a large exodus of population. This year, California’s population shrunk for the first time in the state’s history.

Fast-forward to today, global investors from global markets such as Saudi Arabia, Korea, Hong Kong, and London that have significant capital to invest in should consider Dallas. Here’s why:

1. Coming Out Of The Pandemic, Dallas Is The Best-Positioned Market For Business In The U.S.

According to the Dallas Regional Chamber, the greater Dallas area includes headquarters for 42 of the Fortune 1000. Large companies that call North Texas home include McKesson, ExxonMobil, AT&T, Kimberly-Clark, Charles Schwab, Southwest Airlines, American Airlines, 7-Eleven, GameStop, AECOM, Comerica, and Toyota North America, to name a few. With friendly taxes, ample land for development, and a free open labor market, Dallas will be the next HQ2 for many companies, such as Goldman Sachs and its HQ2.

2. Texas Is Surpassing Every State In The Race For California Company Relocations

According to a study by Spectrum Location Solutions and Stanford University’s Hoover Institution, Texas is claiming the headquarters of California companies at more than four times the rate of its nearest competitor. Nearly half of the companies that moved from California so far this year have landed in Texas, according to WFAA. It’s clear: People vote with their feet.

3.  Dallas-Fort Worth Leads The Nation in Overall Population Growth

Dallas-Fort Worth led the country in population growth last year, adding 120,000 residents from 2019 to 2020, according to the U.S. Census Bureau. Just recently, Amazon announced its plans to hire 11,000 workers in Dallas-Fort Worth and offer $1,000 sign-on bonuses. Additionally, Transwestern research highlights how urban density is here to stay as Dallas is expected to become as big as Chicago by 2035. Dallas remains well-positioned and could experience growth dynamics similar to the 1980s energy boom.

The PwC’s Emerging Trends in Real Estate® Report named Dallas the No. 4 market to watch in 2021 and the No. 1 market in its 2019 ranking. The report highlights that “cost-conscious companies will gravitate toward cities that are business-friendly, feature low cost of living and include large, growing workforces.” This description perfectly matches Dallas.

As companies continue to enter the greater Dallas market, they will need high-level consultation with site selection and workspace strategy.

Dallasites have their sights set on the future. Institutional capital would be remised to overlook Dallas when investing in commercial real estate based on positive fundamentals and demographic growth.

As they say, “Don’t mess with Texas.”

Billy Gannon is Senior Vice President at Transwestern.

D MAGAZINE. (2021, October 12). Dallas: The ‘Third Coast’ [News post]. Retrieved from https://www.dmagazine.com/commercial-real-estate/2021/10/dallas-the-third-coast/

If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

North Texas’ Commercial Real Estate is in Hyper-Growth Mode

Thanks to the influx of people moving to the area and pent-up demand from last year’s pause in multifamily construction, Dallas’s commercial real estate is in a hyper-growth mode with many construction projects underway. Despite this generally positive state of affairs, it’s evident that our industry as a whole is experiencing macroeconomic influences on construction costs.

While I personally thought there may have been a temporary pause or even a reduction in construction costs due to COVID-19, and the resulting delay in construction starts in Q2 of 2020, this has not happened.

Volatile Costs Rattle Developers

While I personally thought there may have been a temporary pause or even a reduction in construction costs due to COVID-19, and the resulting delay in construction starts in Q2 of 2020, this has not happened.

The main headline throughout 2021 has been the parabolic rise and subsequent fall in the price of lumber, with prices escalating to a high of more than 300 percent of what they were in April 2020.

Then in mid-July, we saw lumber prices crash so much so that it started to give hope to developers and builders. Although lumber certainly is consuming the headlines, it is not the only area of concern. Collectively, the cost of building supplies has increased by close to 13 percent over the past year, according to Bisnow.

The U.S. Bureau of Labor Statistics’ producer price index has reported staggering increases in other essential building materials, such as steel mill products escalating by 87 percent and aluminum by 33 percent. And, while we’re on the topic, there have also been supply chain issues, labor shortages, and production bottlenecks that have only added fuel to the fire.

Fluctuating prices in the building industry have been so frequent — often changing dramatically by the day — that accurately estimating building materials costs and pricing out projects has become a significant hurdle for multifamily developers. Not to mention, the extended lead times we’re experiencing have resulted in us having to shift our focus from fast and efficient completions to more careful planning and coordination. This is why I believe that pre-construction is the essential phase in any significant project now more than ever.

We must be both proactive and reactive, being flexible and adjusting to the latest industry insights. Without a solid plan (and backup plan) in place, things will slip through the cracks that could have been mitigated otherwise. Now more than ever, developers need to stay in close contact with construction trades to track the fluctuations of various materials and labor inputs.

The fluctuation of building material prices could catch one off guard if they’re unaccustomed to the market’s volatility, specifically as it relates to multifamily development.

For industry veterans, the challenges of rising construction costs are both frequent and inevitable, though perhaps not quite to the severity we’ve been experiencing throughout this year. We’ve experienced temporary demand spikes in the past, like when China was buying an abundance of steel or following Hurricane Katrina when high volumes of lumber were needed to rebuild an entire region. Now, we are in a prolonged and complicated hypermarket because it wasn’t due to a temporary macroeconomic event, but rather one that has been unprecedented in over a century.

While I’m unsure when the extreme highs and lows will settle, some of these issues are likely to be transitory, and I do expect prices to stabilize sooner than we think. But they are likely to stabilize at or near today’s elevated levels.

Rising Rents and Values Save the Day (for now)

Fortunately for developers, the rising costs have now been offset by rising rents and rising sale values for completed projects. This escalation didn’t happen in concert – there was a period lasting several months where costs rose before rents and values also inflated. But, just as things were getting more untenable on the cost side, rents began to take off in the last six months.

By July 2021, Dallas-Fort Worth’s average apartment rents were up 9.3 percent year-over-year, with many submarkets notching double-digit rent increases. Vacancies also shrunk dramatically, and move-in concessions tapered as well. With this furious increase in the top line income for apartments, projected NOI for new developments justified construction again, even with higher costs.

After rents began their climb, sales prices for completed projects also rose nicely over this year, with price increases also well into the double-digits. Suburban Class A buildings new routinely cross the $200,000 per unit mark with more infill projects selling for well into the $200,000s per door and beyond – sometimes far beyond.

This pricing spike mirrors single-family pricing, which is also up 16 percent year-over-year in Dallas, which directly contributes to demand for apartments. The net result of escalating rents, coupled with cheap financing for newly built assets, was a frenzy of bidding for quality Class A multifamily product. And this rise proved to be the ultimate validation that it can still be worth it to build multifamily projects, despite the increased costs.

Risks Remain for Developers

While the escalation in rents and terminal values for projects have for now balanced out rising costs, this is not an “all clear” moment where it makes sense to build anything anywhere regardless of costs.

In some ways, this remains a fraught time for developers, as we take on the bulk of predevelopment expenses in getting a property to a groundbreaking before debt and equity are sourced. It’s relatively common for a developer to spend $1 million in predevelopment costs and deposits before a shovel hits the ground on a suburban project – and those costs are sunk if a project never gets off the ground.

With rents and exit values again justifying the construction of new multifamily in North Texas, it once again makes sense to build quality projects in robust submarkets. However, should costs continue to run further, there is always a risk that the balance once again tips the wrong way. Now more than ever, developers need to keep their fingers on the pulse of ever-changing data.

D MAGAZINE. (2021, September 20). North Texas’ Commercial Real Estate is in Hyper-Growth Mode [News post]. Retrieved from https://www.dmagazine.com/commercial-real-estate/2021/09/north-texas-commercial-real-estate-is-in-hyper-growth-mode/

If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

Building A Better Entertainment District: Bring The Buzz, Then The Boxes

After the coronavirus pandemic crippled major sports and events, visitation to the area is up to just under 69% of 2019 numbers and climbing, according to Chris Briggs, senior vice president of consumer analytics and technology company Buxton. Texas Live! Is selling out concerts. And Dallas Cowboys Executive Vice President of Business Operations Chad Estis said months of pent-up demand meant events like the May 9 Canelo Alvarez-Billy Joe Saunders boxing match at AT&T Stadium sold more than 72,000 tickets versus just 45,000 when Alvarez last fought in the venue several years ago.

“There’s this term that I have been seeing in a lot of the data we get called ‘revenge spending,’ and I think it’s real,” Estis said.

But entertainment districts and large mixed-use projects could be even more successful if developers went about their design strategies differently, according to one contrarian panelist at Bisnow’s The Future of Tarrant County event Aug. 17 in Fort Worth who said developers aren’t sufficiently considering the needs of the retailers, restaurateurs and visitors who make such spaces come alive.

“They always start with an architect and a designer, and those people are not food and beverage people; they’re fluffy pillow people,” Jason Boso of Brain Storm Shelter Restaurants said during a discussion on creating entertainment districts.

“There are construction and budget people, there are traffic impact analysis people, and after all that’s done, then they go, ‘Hey, F&B guys, what do you think?’ Well, we think it sucks, but there’s nothing to do about it right now. And we need to grow our business, so we’re going to come into your half-ass complex. We’re going to make it better, and you’re going to charge us through the nose.”

Boso’s company operates restaurants and beer yards across Texas, including Twisted Root Burger Co. and the soon-to-open Second Rodeo Brewing Co. in the Arlington Entertainment District. The district hosts two Six Flags theme parks, AT&T Stadium (home of the Dallas Cowboys), Globe Life Field (home of the Texas Rangers), the Texas Live! entertainment complex that includes the Arlington Backyard outdoor concert venue, and a number of other attractions, hotels, apartments, shops and restaurants.

Boso said many developers assume building apartment buildings — or, as he calls them, “little vanilla boxes” — is what catalyzes the growth of nearby businesses like his, but the order should be reversed.

Instead, he said, developers should focus on restaurants, bars, shopping and activities that create a buzz, then build residential complexes around that later. Currently, he said, retail rents are set at about $45 per SF in Arlington Entertainment District, a price developers justify by pointing to apartment occupancy and selling a built-in customer base. But not only does occupancy fluctuate, nearby residents make up a mere drop in the bucket of the covers necessary for him to turn a profit.

“Why not break even on the food and beverage and then [later] charge an extra dollar a square foot?” Boso said. “But they do it backwards, and it hurts our industry tremendously.”

Parking is another thing developers of entertainment districts get wrong, he said. Too much and overly convenient parking destroys the energy and walkability of a place, Boso said, giving visitors fewer reasons to linger and explore.

“It’s OK to make people walk a minute or two because you’ll create a better destination,” he said. “Just stop making it so convenient for cars and make it more interesting for people.”

Making the Arlington Entertainment District more interesting is of keen interest to Texas Live! Chief Operating Officer Jim Watry, who said his goal is to extend the time spent in the area, whether it’s encouraging tourists to stretch their stays an additional night or local visitors to hang around an hour longer after a game or concert. That means working in an integrated fashion with other venues in the district. Watry said he would also like to see the district offer more events and entertainment.

“This started with, ‘How do we give people a way to come an hour before the game?’ … because we went 30 years without giving anybody an opportunity to do anything but come, go to a game and then leave,” said Sean Decker, executive vice president of sports and entertainment for the Texas Rangers. “The goal now is always one more night, whether it be getting more folks to staycation or vacation and then hopefully eventually moving into giving people a reason to live in the district so that we can work, live, play, eat, all those things. That’s ultimately where we have to go for long-term sustainability in our eyes.”

Panelists said the center needs more density in the form of hotel rooms and residential units to keep people on-site for more than a few hours — thousands of units, Decker said, if it is to attract the major events it is after, including the World Series. Estis said AT&T Stadium is in the running for the World Cup as well.

Those involved with the Arlington Entertainment District said there is also a need for more activity and entertainment that doesn’t involve shopping, especially in the hours between lunch and dinner.

“There needs to be more activity that … gets you out there spending the money,” Boso said. “[We] need to be giving multiple opportunities within one area of walking distance so they don’t get back in their car and go somewhere else. It’s a little bit like candy in the shopping line at the grocery store line where you might just grab it — they’ll walk in and spend a couple of dollars by us living all together in a walkable district where we can spend multiple hours, not just have appetizer, entrée, dessert and go home.”

BIZNNOW. (2021, August 19). Building A Better Entertainment District: Bring The Buzz, Then The Boxes [News post]. Retrieved from https://www.bisnow.com/dallas-ft-worth/news/construction-development/building-a-better-entertainment-district-create-buzz-not-boxes-109930

If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

Dallas Is Ready To Get Back To The Office, But The CRE Ground Has Shifted

Dallas’ commercial real estate community appears bullish that at least 85% of workers will be back at the office live and in person in some capacity by January 2022 — not a bad bet given the industry’s go-to post-pandemic metric, Kastle Systems keyless entry system tracker, shows nearly 5 in 10 are already there.

But anyone thinking it will be straight back to business as usual is likely to be disappointed. As flat as predictions “Covid-19 will change everything” have fallen, so too might hopes it has changed nothing.

“I don’t think we’ll ever get back, quite frankly, to what we saw pre-pandemic,” HqO Senior Account Executive Clay Curlee said at Bisnow’s The Evolution of DFW Office event this week, adding the coronavirus pandemic had accelerated trends already in motion, including the way tenants use space.

“I don’t think that’s necessarily a bad thing,” Curlee said. “When you look at best-in-class landlords, they will prevail, they will have fuller space. [But] I think that they’ll find their tenants are doing more with less. Just being a realist, I don’t think you’re ever going to see quite the same usage that you saw prior.”

ARCO/Murray Vice President Lauren Ladowski said she is seeing a range of reactions as the worst of the pandemic subsides and companies begin summoning employees back to work. One large fintech client in Westlake, she said, is operating “as if Covid never happened,” filling its 50K-plus SF facility with workers operating in cramped 150 SF cubicles. On the other side of the spectrum, a client with 35K SF in Addison is downsizing to a new 11K SF facility in Richardson and embracing a flexible office hoteling environment with collaborative space.

“I think what we’re going to see moving forward is everyone really optimizing their square footage, and that might mean something different for every culture, company and firm, depending on what their employees need and what they need to retain those employees,” she said. “But focusing on amenity spaces, collaboration areas and making sure that you don’t have wasted space within your office footprints is a trend that’s going to continue driving usage [going] forward.”

Panelists agreed that small companies are leading the way on the return to office, in large part because they are unencumbered by national or global corporate policies. Hillwood Urban Senior Vice President Walt Zartman said some large corporations, including big accounting firms, that were heavily reliant on hoteling throughout the Covid crisis are still struggling to rewrite their real estate models.

“They’re in a mess right now, because they don’t know how to figure it out,” he said.

“We’ve got a couple of tenants, big corporate users, where it’s a ghost town at these wonderful new facilities,” KDC Senior Vice President Bill Guthrey said. “While there might be a desire to get everybody back in, a lot of these big corporations are looking at their entire global landscape and can’t do something unique in certain markets. They have to consider the concerns and the legal aspects of … pushing people back to work and how do we get it done?”

That might sound discouraging in the short term. But panelists agreed the DFW market is robust enough to adapt by continuing to attract a disproportionate share of office employment growth nationally, pointing to big deals on the horizon like Goldman Sachs’ hunt for up to 1M SF in the area as well as Peloton’s announcement late last year that it would quadruple its footprint at Legacy Central in Plano.

WorkSuites President and CEO Flip Howard, who calls the coworking industry the office canary in a coal mine, has seen his coworking business roar back since December, culminating in the company’s best seven-month stretch ever. He expects coworking space, which now accounts for 2% of all office space, to eventually encompass up to 30%. The reason: flexibility.

“And it’s not all enterprise users, it’s everybody,” he said. “The other thing that we’re seeing that is surprising is even from the landlord side, when we go to buildings looking for more space, it used to be, ‘Yeah, we’d like a floor of coworking, but let’s see if we can get this law firm in here first. Now it’s the exact opposite of that. It’s ‘If we don’t have coworking in our building, we need a floor of that.’ We’re even hearing about tech tenants requiring there to be a coworking floor in a building before they’ll even consider taking another floor of that building.”

And, for every footprint readjustment, panelists said, there is business to take up the slack.

“I think there is a reduction in footprint, [but] Dallas will be able to absorb that better than any other place in the country,” Transwestern Senior Vice President Billy Gannon said.

“When companies look around, they’re like, ‘Hey, we want to hire, we want to grow our company.’ But if you’ve got a national footprint, you’re going to do it where the state’s open, it’s business-friendly, there’s low taxes, low regulations and good, qualified hidden labor versus having to do that [in] Seattle, San Francisco or New York. It makes all the sense in the world, and if we reduce our footprint by 5% here, we’ll exceed it by bringing in an extra 10%, 15% [there].”

BIZNNOW. (2021, July 16).  Dallas Is Ready To Get Back To The Office, But The CRE Ground Has Shifted. [News post]. Retrieved from https://www.bisnow.com/dallas-ft-worth/news/office/dallas-is-ready-for-back-to-work-but-the-cre-ground-has-shifted-109576

If you enjoyed this post, follow AngMar Realty on Facebook

CategoriesUncategorized

Everything’s Coming Up Roses for DFW’s Industrial Market

While DFW’s office market struggles with the thorny issue of returning to the office and how much space tenants will need in a post-pandemic world, the region’s industrial market is booming.

Across North Texas, demand for industrial space is pushing vacancies lower and rents higher. That’s great news for owners who are enjoying higher property values. But at the same time, industrial tenants are grappling with fewer options and higher occupancy costs.

In an environment where demand exceeds supply, what can these companies do to ensure they have the industrial space they need, when they need it, and for a price, they can live with?

Throughout the pandemic, we’ve all heard about supply chain disruptions. First, it was toilet paper, then it was pork, and now it’s all kinds of materials, from semiconductor chips to steel.

The pandemic forced consumers to change the way they shop. Recent forecasts predict e-commerce sales will account for 30 percent of U.S. retail sales in the coming years. Amazon accounted for roughly one-third of all e-commerce sales and occupied 10 percent of all industrial space in the U.S. That translates into roughly 2 billion square feet.

Fewer visits to stores and more online shopping translate into more demand for warehouse and distribution space. In fact, experts estimate that e-commerce requires about three times the amount of warehouse space relative to physical retail space.

E-commerce only represents a portion of overall industrial demand. Other industries such as automotive, petrochemical, and technology are expanding too.

Again, this strong demand is good news for the overall economy. Yet, it also represents additional difficulties for companies seeking industrial space, either as part of an expansion or a new location.

For DFW specifically, it’s a perfect storm of low-interest rates, pent-up demand from the pandemic, e-commerce, population growth, global trade imbalance, and the growing need for backup/safety stock.

Dallas-Fort Worth is considered one of the “elite” industrial markets, ranking alongside Northern New Jersey, Long Beach, Chicago, and Atlanta. Industrial users are attracted to North Texas for several reasons, including its central location, two airports, expansive rail infrastructure, the intersection of several major interstates, and deep labor pool. All these attributes make it a super-regional distribution hub.

The total industrial market in DFW consists of just over 832 million square feet, and at the end of 1Q21, the vacancy rate was 5.4 percent, according to CBRE. The decrease can mostly be attributed to occupiers taking vacant existing buildings and strong pre-leasing for product delivered over the quarter.

Furthermore, the first quarter marked the 42nd consecutive quarter of positive industrial absorption in DFW, following five years of demand surpassing 20 million square feet from 2016 to 2020. The trailing 12-month absorption was 27.4 million square feet, and 10.3 million square feet in new leases were signed during the first quarter.

Meanwhile, rents are also rising across the DFW – asking rents are averaging over $5 per square foot – and will likely outpace inflation in the next few years. This means almost all leases signed in the last four years in Dallas are below market.

If you’re a tenant, you can act now to prepare for the future and protect yourself against competitive pressure and paying a higher rental rate.

If you need more space, you may want to consider renegotiating with the property owner now before your lease comes up for renewal. It’s a landlord’s market, but you may be able to get a rent reduction if you take additional space or sign a long-term lease.

Some tenants are digging further into potential consolidations within their footprint and investing in technology to utilize their space better. Even trying to control operating costs is important as few tenants actually know their all-in real estate costs behind the initial face rate.

If you’re a tenant with future expansion plans, consider buying your current building or a new facility, either yourself or with an investor like Mohr Capital. Even if it’s larger than you may need. You always have the option of subleasing the excess space until you can utilize the balance in the next year or two.

Finally, if you’re an owner-occupier and you’re looking for a way to fund a business expansion, you might want to consider selling your building and leasing it back. Investor demand is fierce, and property values are increasing daily. In short, you are monetizing the value of your tenancy while the market is at a historic high.

I’ve been involved in DFW commercial real estate for nearly four decades, and I’ve never seen more demand for industrial properties from tenants or investors. That’s why I feel confident saying that everything’s coming up roses for DFW industrial.

Bob Mohr is the founder of Mohr Capital and Mohr Partners.

D Magazine. (2021, June 17). Everything’s Coming Up Roses for DFW’s Industrial Market [News post]. Retrieved from https://www.dmagazine.com/commercial-real-estate/2021/06/everythings-coming-up-roses-for-dfws-industrial-market/

If you enjoyed this post, follow AngMar Realty on Facebook