Dallas Pros Foresee Another Challenging Year

The brightest sign on the office market horizon is executive suite operators are filling up and their rents are starting to rise. If the small businesses can stay the course, they could step into office space in one to three years. "It's a sign of the good things to come," Michael Wyatt, senior director for Cushman & Wakefield of Texas Inc., told the packed room at the Brokers 2005 Forecast hosted by the North Texas Commercial Association of Realtors at in the Hotel Inter-Continental in North Dallas. "I wish I could be more optimistic, but I think we're going to have one more year of challenges and then in 2006 we'll be off to the races."

The Dallas CBD, shouldering a 30.7% overall vacancy in 29.6 million sf, is the worrisome spot. The Chase Bank/Bank One merger conceivably could dump another 500,000 sf onto the market, Wyatt said, hinting this year might trigger a slight rent decrease in the Downtown stock. There also is cause for concern in the suburbs: JCPenney is talking about a consolidation at its campus and a handful of developers are holding plans for one million sf, all in the northern tier.

Chris Teesdale, vice president for Swearingen Realty Group LLC, had equally dismal news for the industrial crowd. "I think the industrial market for '05 is going to look a lot like '04," he said. Activity will be strong for deals under 30,000 sf and the larger ones will remain tough to close. As for any good news from the sector, word is incentives will wane.

Now, more than ever before, brokers should stay tuned to rail-served locations, Teesdale said, explaining Union Pacific and Burlington Northern Santa Fe are racing to be the first to finish a second cross-country parallel line and lay claim to revenue from container logjams at ports. "The rail industry is something for all of us to keep an eye on," he said.

Some of the best news came from the retail front, but even that reflected a change in the times. Mickey Ashmore, president and CEO of United Commercial Realty/ChainLinks, reported there are just 68 developments under way, of which only six are grocery anchored. Meanwhile, there are 20 centers rising in the shadows of a Wal-Mart Supercenter or Super Target. As a result, traditional grocers are trying to "re-invent" themselves to compete and specialty grocers are filtering into town to offer alternative shopping.

"I foresee a lot less development this year," Ashmore said. "You're going to have to work harder. You're going to have to work smarter."

And while most brokers grimaced over a 2004 repeat, those in the investment sales sector again will have reason to smile. "We're fortunate to see the capital coming into the market when the fundamentals are going down," said Russell Ingrum, senior vice president of investment sales for CB Richard Ellis Inc.

Buyers are coming from Germany, England, Denmark, Australia, Israel and the Islamic countries. And, they're up against pension funds, which have allocated $51 billion this year for acquisitions nationwide, and the fast-growing syndications, predicted to be holding $7 billion for 2005 trades, Ingrum said. "We think syndications are on the cutting edge of pricing," he said.

Ingrum predicted another year of strong sales with one caveat: a sharp rise in interest rates. Should that happen, "I think we're going to have problems in the real estate market," he said.