"It's stagnant from a standpoint of what's being traded, but it's not stagnant from a standpoint of demand," Frieze stresses. He has just completed a White Paper that shows the DFW's positioning in comparison to Atlanta, Houston, Washington, DC, Los Angeles, San Francisco, Boston, Chicago, Detroit and New York City.
The problem, Frieze says, is a lingering misperception of that era when the bottom fell out of the Texas market. "To crystallize the true picture of the DFW market," he says, "shows that it bears no resemblance to the 1980s." Savvy building owners know what their properties are worth whereas wary investors don't want to spend more than the building's replacement cost, creating a standoff in the bid-ask arena thanks to days gone by.
The reality is that rents surely will be rising and less product will be delivering in the DFW region, says Frieze. The DFW's class-A office space is fetching $22.92 per sf while the weighted average net asking price is $17.35 per sf as of January. That weighted average is four times less than San Francisco's.
Frieze's number crunching shows the DFW office market will reach its tightest level in 2003 in two decades unless there is a turnaround in lenders' and investors' attitudes. Right now, a project must be 50% pre-leased before the first spade of earth can be turned. And the existing inventory of nearly 162.8 million--including single-tenant structures--has just 12 suburban class-A buildings with 100,000 sf or more of contiguous space. Frieze is pegging DFW occupancy at 89.8% by including single-tenant buildings and stripping out class-C structures, mitigating factors not usually considered in other accountings.
Sure, there is some 4.4 million sf in the development pipeline, but construction is barely keeping pace with demand, he points out. Holliday Fenoglio Fowler puts annual absorption at an average of 4.8 million sf and Torto Wheaton Research, which is included in Frieze's review, projects an annual 4.7 million sf will be absorbed through 2004. That, he says, is the reality of the marketplace. In the past decade, more than 100 major corporate relocations and expansions have occurred in the DFW region. And of those, 75 have come into play since 1996, says Frieze.
The research director has done the numbers for job growth, population projections, housing starts, costs of living and doing business and the office markets for each of the 10 cities. "In virtually every category, Dallas-Ft. Worth is either the leading metro or at least in the top four or five," says Frieze. "But Wall Street is controlling the real estate industry and market information is the key to getting investment dollars." The DFW's barrier to entry isn't land, development willingness, rent or municipal restrictions. It's barrier is "market information and lenders' interpretations of that as to whether the spigot of money gets turned on or not," he concludes.
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