Researchers' Advice: Decide Before Midyear

"The key driver of this growth was business spending, which finally kicked in on top of already strong consumer spending," Harry S. Dent Jr., president and founder of the HS Dent Forecast, this month wrote to investors. "However, it's unlikely that we can maintain this rate of growth." He says a moderate correction--a period to "allow the market to catch its breath"--has finally arrived, as the research firm predicted it would. Threats of terrorism are unavoidable parts of the equation that could cause a temporary setback. "The economic and emotional impact of these threats--and our responses to them--can and will negatively impact our economy in the short term," he said.

John B. Levy & Co. is strongly advising clients to get deals financed in the first six months of the year. "Rates are at a historic low, spreads are at a historic low, there is an extraordinary level of capital available--but something's got to give. This market will not last forever," John B. Levy said in the latest Barron's/John B. Levy & Co. National Mortgage Survey, "and I expect rates will go up significantly after June."

Levy reports many insurance companies and pension funds, which had a stellar 2003, have anted 2004 goals 40% to 60% in lending circles. "With this much capital invading the market, it's hard to make an argument for spreads to widen, especially in the first half of the year," he concluded.

On the local front, tenants too are being urged to cut deals in the first six months. Even building owners in Dallas' hardest hit submarkets are looking to gain some leverage after midyear.

Greg Biggs, Studley's senior vice president and Southwest region manager, pointed out what other market watchers also recognize. "Tenants," he said in the Studley report, "are continuing to take advantage of the deals offered in the area to renew in their current space under favorable terms or up upgrade to higher quality space."

With the High Five freeway project in the LBJ submarket running six months ahead of schedule, the first leg of which recently delivered, Biggs predicted rental rates will stabilize in the market, where vacancy is now 38.9% and rent averages $17.02 per sf. Another 5.7% of class B space hit the market while class A tapered just a shade, 0.9%. "In a submarket that has seen a consistent increase in availability for the past several years, this is significant," Biggs said.

The hard-hit Las Colinas submarket posted a 2.3% decline to end the year with 31.7% vacancy and an average rate of $18.07 per sf. Studley's numbers show two other submarkets resting above 30%: Richardson Telecom Corridor, where the 34.2% availability has sunk the average rent to $14.37 per sf; and Far North Stemmons, 56.8% with a rate of $14.36 per sf. According to Studley, the DFW's vacancy is 27.9% in an inventory of 184.2 million sf with the average rent riding at $17 per sf. The report showed more than 3.6 million sf, across all classes were leased in fourth quarter 2003.