FORT WORTH-Presenters at the 24th annual Tarrant County Commercial Real Estate Forecast on Jan. 24 offered a consistent message to the 575 participants who showed up: Fort Worth is doing fine with jobs and the economy, as is Texas. Trends and predictions did differ between sectors, however.

Drew Kile, associate director with Institutional Property Advisors, a Marcus & Millichap Co. and Cypress Equities and SRS Real Estate Partners CEO Chris Maguire discussed multifamily and retail trends, respectively. The trends shared between these two sectors included higher demand for mixed-use and urban infill assets. Another trend these sectors shared was a tightening of available units and/or space.  These were the only trends these two sectors shared in common, however.

One interesting issue introduced by Kile involved actual multifamily starts. “There were more developments announced in 2012, but fewer starts due to increasing construction costs,” he says. The example he cited was sobering – at the beginning  of 2012, construction costs had increased approximately 5%. “As the year went on,” Kile says, “we were seeing 15% increases.”

This is one of the reasons why value-add has become so popular among investors coming into Fort Worth. “The interest in Bs and Cs has grown, as people see more yields there,” Kile explains.  Fresh from the National Multi-Housing Council that just took place in Palm Springs, CA, Kile tells the story of one of the national REITs that is taking its billions and putting into property upgrades, rather than into making new acquisitions. Nor is that one REIT an anomaly. “We kept hearing stories about how folks were targeting A-minus, B-plus properties,” Kile says.

Moving on to retail, Maguire pointed out the general trend that the big boxes are definitely shifting down to smaller use space and higher customer service. Look for retailers to continue downsizing and putting more into customer service as opposed to floor space. “Retailers need to understand these days that their stores are just one stop on the path of the customer experience,” he comments. 

Furthermore, unlike the multifamily sector, which is seeing solid construction because of agency lenders, lack of capitalization continues tight for the retail side, with properties still tied up with banks and special servicers. Nationally, approximately one-third of the retail space out there is considered obsolete, dysfunctional or poorly placed, Maguire says. Some stores are considered obsolete as well – Blockbuster will continue its downsizing activities, as will Sears, Gap, Abercrombie & Fitch, Stride Rite and Payless. Maguire explains what other experts have –  some of this is due to sluggish consumer confidence, combined with growing sales on the Internet.

In addition to the continued value-add focus on the multifamily side, Kile predicts that construction costs should slow and normalize, while more equity will be invested in suburban projects. He also believes that starts in 2013 will be measured – developers aren’t likely to go too crazy putting more units into play. “People want to be cautious about what’s being built,” he notes. “A lot of construction likely won’t happen, but that’s good. It could put the kibosh on overbuilding.”

Don’t expect a lot of construction to happen in the retail sector, either, Maguire says, though redevelopment and infill projects will be on the rise. Furthermore, mixed-use concepts will continue to grow. Furthermore, other retailers, such as Whole Foods, H&M and Zara are eyeing Fort Worth for possible expansion.  Maguire goes on to say that grocers and fashion concepts will continue to lead the charge.

The 2013 Tarrant County Commercial Real Estate Forecast was hosted by the Greater Fort Worth Real Estate Council and took place Thursday, Jan. 24 at the Ridglea Country Club. Look for a story about the industrial and office sectors on Jan 25.