DALLAS—The region is becoming a top destination for companies and a target for investors who are eyeing it anew in the wake of its economic expansion and job growth, Colliers' Steve Everbach tells GlobeSt.com EXCLUSIVELY.
By Carrie Rossenfeld |
colliers ||July 27, 2016 at 12:45 AM
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DALLAS—The Central US region is becoming a top destination for companies and a target for investors who are eyeing it anew in the wake of itseconomicexpansion andjob growth,Steve Everbach, president ofColliers International‘s Central Region, tells GlobeSt.com. Everbach says the area is “no longer just a flyover market when traveling coast to coast,” but a desirable place for companies to locate and for investors to achieve the yield they seek in real estate investments. “We are seeing solid job growth, obviously led by certain cities like Dallas, Chicago and Austin,” says Everbach. “All of the other major markets in the region are seeing growth, but at a bit more modest pace, but Dallas’s growth is leading the nation.” With regard to the economy, Everbach says he is seeing a migration to the center core of each metropolitan area, the center city, driven not only by the available labor, but also more specifically by Millennials who want a live/work/play environment . “There’s a little bit of a trend toward the center cores, which is reversed from a decade or so ago, and we’re seeing that in every city in our central region. From a real estate perspective, technology is driving growth. For example, in Indianapolis, Salesforce just took a 200,000-square-foot-plus lease , and Detroit is seeing growth in car industry and autonomous vehicle technology (a.k.a., driverless cars ); they need talented, qualified engineers for this, and many are in the Detroit area because of the car industry.” Everbach adds that the Gilbert family, which founded Quicken Loans , purchased about 80 buildings in Downtown Detroit, so the city is seeing a rebirth.” Despite all this growth in the central region, new construction is very measured, with no obvious overbuilding in any city. “This translates to market fundamentals being very good overall for investors,” says Everbach. “The central region has positive activity from an economic and real estate standpoint.” As a result of these strong market fundamentals and for a variety of other reasons, the central region is becoming a top destination many companies. Everbach says there are some similar themes in each city including quality of life, a skilled workforce and a lower cost of living than most coastal cities.” From a company-operating perspective, one has a lower cost of operations, labor and facilities, and being in the central time zone is also advantageous for many global and US enterprises. We’re also seeing more accelerated growth in some areas like Dallas/Ft. Worth, Chicago and Michigan—in fact, we at Colliers recently acquired our former affiliate in West Michigan because we believe it’s a nice growth market and our clients want to be there.” Some of the major central-region cities—particularly Dallas, Chicago and Houston—are now also top targets for real estate investors. While Chicago and Houston have their specific sets of challenges, they remain two of the largest markets for investments in the US, says Everbach, “we are seeing other cities like Indianapolis and the Missouri cities of Kansas City and St. Louis becoming more attractive to investors due to nice steady growth. One issue though for the larger institutional investors is the lack of large quantities of trophy investments available. Institutional investors generally look to place large volumes of money; they have a lot of cash on the sidelines, so they look for larger transactions, and we’re not seeing those investors en masse.” However, Everbach says a different group of investors is placing new capital as evidenced by three new investment funds: Hearn, Onward and Hertz as examples. “We’re seeing funds take a second look because they’re looking for higher returns. Colliers’ research recently completed a study of yield spreads in the central region versus the coasts, and there is an approximate 150-bps spread to the upside in yield on central-region office , and 130-bps spread on industrial . An investor coming into the central region is obviously going to look for growth, but they will get a better yield compared to the coasts, where there are multiple bidders driving up prices and cap rates are more compressed.” Most central-region cities should continue to experience good growth, from a general economic and real estate investment standpoint. Everbach stresses. “There is low cost of doing business, low cost of living and good quality of life. The growth prospects are solid, you get better yields compared to the coasts, and there’s a less competitive bidding process. Colliers has made substantial investments in the central region in the last year because we believe in it, too. It’s time to take a fresh look in the central region – wheels down, time to land.”
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