Andrew Gross Andrew Gross says with greater demand than supply, Dallas asset pricing is surging.

DALLAS—Mayor Eric Johnson recently presented the state of downtown address and there were specific applications to the commercial real estate industry included in the speech, including the 2019 to 2020 fiscal budget which is set to reduce property tax rates. Johnson said he was proud of the growth in downtown Dallas, including additional retail stores, restaurants and museums that are attracting more people and businesses to the area. He added that he would like to see downtown become more walkable and livable, a place where people not only work but also reside.

In this exclusive, Andrew L. Gross, senior associate of capital markets at Matthews Real Estate Investment Services, recently shared his thoughts on the state of downtown address, and how the growth of Dallas relates to property owners and real estate investors. How will Mayor Johnson’s plan to make downtown Dallas more livable coupled with the 500% population growth impact retail, STNL, shopping centers and multifamily investments?

Gross: This is simply a matter of economics, revolving around supply and demand. Mass population growth increases demand for real estate assets. Real estate developers are doing their best to supplement the real estate supply by reimagining and reinvesting in downtown Dallas. However, with a greater demand than supply available, the pricing and value of Dallas real estate assets are rising rapidly. Demand for retail space for national and local tenants is driving up the asking rents from landlords across the retail landscape. Multifamily assets are also experiencing incredibly high occupancy rates and rents are driving up accordingly. This creates more value for Dallas owners of all asset classes to have income production grow as a result. How will areas surrounding downtown Dallas that traditionally have been not as sought after begin to register dramatically increasing values?

Gross: The new development and growth of downtown have produced a ripple effect of higher value to the surrounding areas. Project areas such as Trinity Groves have transformed over the last decade from a neglected area of west Dallas to an 80-acre long-term redevelopment project boasting restaurants, retail and mixed use. Additionally, it will include residential development communities such as the SoHo Square project, worth up to $300 million, and Trinity Green, worth up to $400 million.

Since 2015, areas such as the Design District have become some of the most sought after and valuable real estate locations in the entire Dallas-Fort Worth MSA, with hundreds of millions of dollars being poured into the area for new hotels, restaurants, residential and office buildings. Deep Ellum and Bishop Arts are two other areas changing by the day with new restaurants, apartments and retail being built. What will the impact that Dallas becoming an industry hot pot for tech talent and one of the fastest-growing tech hubs in the country have on commercial real estate in the area?

Gross: The world economy is progressing with the tech industry leading the way. E-commerce has influenced the everyday experience in nearly every sector of business. With large tech companies moving to Dallas, the DFW market is cementing itself as an area that will grow with the new technological wave. When top-tier talent and a younger, highly educated workforce is paired with higher household incomes, the families of the future will demand more and higher quality real estate product. Prospective companies like UBER are expected to bring 3,000 new jobs to downtown Dallas, following firms like Facebook, where its $1 billion data center development in Fort Worth is one of the largest in the entire country. Tech giants like Google have invested $600 million in a data center development in the suburb of Midlothian, which is just a short drive from downtown. How will the property tax rate reduction potentially attract more investors?

Gross: With the Dallas City Council lowering the new property tax rate for the fourth year in a row, current and new real estate investors are certain to gain more confidence in Dallas investing. Lower taxes will typically yield higher cash flow potential. The shelter of lower tax rates should result in increased capital investments from more investors in the DFW area and across the country.

One of the hottest topics of the past year has surrounded opportunity zones and tax benefits. The majority of designated opportunity zones in Dallas are situated downtown, on both sides of Interstate 30 and the Oak Cliff area. There has already been new investment activity in these traditionally disenfranchised neighborhoods. Many of these areas were already experiencing mass investment for new projects and developments, and the tax advantage provided by the opportunity zone incentive program has brought even more capital into these areas. What are the plans to make Dallas more walkable? Gross: In his state of downtown address, mayor Johnson reported that currently, only 13% of those living downtown take DART and only 15% walk to work. He is committed to development that will significantly increase those numbers. The 2019 to 2020 fiscal budget includes more funding for downtown public safety, building more affordable multifamily housing and expanding walkable urban neighborhoods. All these improvements are vital to growth, leading to more efficient economies and attracting developers to make Dallas more walkable, inhabitable and livable.