market remains hot after the second quarter. While office occupancy fell in the second quarter, the industrial market saw a gain in both occupancy and rental rates. The market is set to absorb more than 4 million square feet of industrial space this year. During the first half of 2014, the retail market say 1.1 million square feet of absorption, which is more than double last year’s numbers.
GlobeSt.com caught up with Jeanette Rice, principal and commercial real estate economist for Rice Consulting, to get a more in-depth perspective into the Fort Worth market and the findings of the report.
GlobeSt.com: What was the most surprising finding of the report?
Rice: Commercial construction. It has really soared. Building permit valuations for the first half of 2014 are almost double last year. The number of projects has increased dramatically. The evidence is also confirmed on any car drive through the Fort Worth area.
I’m also surprised that residential construction year-to-date is up only 3% on a permit valuation basis and 2% on a unit count basis. But our cold winter stymied starts early in the year, and the builders may be running into some challenges acquiring new lot inventory. The most recent data show significantly higher year-over-year comparisons (i.e. +27% increase in single-family housing permits in June), and double-digit increases are more likely to characterize the rest of the year.
On the upside, I’m pleasantly surprised at the rebound in airport cargo activity at DFW. Last year, total air freight dropped 1.8%. Year-to-date through May, it’s up 6%. International air cargo is even stronger with an 11% increase year-to-date. The increases in air cargo reflect also the fact that Fort Worth’s industrial real estate is having a great year. In the year ending 2Q14, CBRE statistics revealed a notable rise in occupancy (+1.9 points to 95.3%) and 6.3% gain in rents. Moreover, Fort Worth is on track to absorb more than 4 million square feet in 2014.
While not totally surprising in this current update, I continue to be impressed with the sustained economic strength of the Fort Worth economy. Since late 2009, Fort Worth has added over 100,000 jobs. Over the past 12 months alone, Fort Worth has added over 23,000 jobs for a 2.7% increase.
GlobeSt.com: Do you foresee these favorable conditions continuing for some time?
Rice: Economists are trained to watch for the proverbial “clouds on the horizon.” There are some clouds. The employment growth rate has moderated a bit, natural gas production continues to slides, and employment in the financial sector is still shrinking due to M&A activity and technology. I do not track defense spending in the Fort Worth area, but given the size of this sector one also has to be concerned with potential declines due to changes in Washington.
That said, I’m generally quite optimistic about the near-term health of the Fort Worth economy. Most sectors are performing well. Some are performing exceptionally well. As a whole, I forecast Fort Worth’s economic expansion to continue to outpace the national economy and continue to be an economic growth engine for the US.
I mentioned industrial real estate already. Demand for industrial space is driven by Fort Worth’s manufacturing and distribution industries, both industries are enjoying very strong expansion in the area. In fact, “industrial employment” – the combination of combine manufacturing, wholesale trade, and transportation and warehousing employment, three employment categories, which traditionally use industrial space – is currently rising at a robust 4.6% rate.
GlobeSt.com: What about the retail market?
Rice: One industry sector which is still getting back on its feet is retail. Fort Worth retail sales barely rose in 2013, and improvement in retail real estate has been very slow to gain traction over the past few years. Of course, the “brick and mortar” retail environment is challenged by e-commerce here as much as anywhere. However, CBRE’s 2Q data brought some good news for sector: net absorption reached 1.1 million square feet in the first half of 2014 almost three times the year-ago total.