Dallas/Fort Worth Market Poised to Swing

Gregory H. Leisch, CEO and founder of Washington, DC-based Delta Associates, delivered the bright news before a packed room of top execs across all industry sectors attending the fourth annual TrendLines, sponsored by Transwestern Commercial Services. "We are more optimistic now, more aggressive in our projections than we were last year at this time," Leisch told the crowd at the reception held in North Dallas' Northwood Club.

If Leisch is on target, the region will add 85,000 jobs this year and into 2008, predominately fuel for office and housing sectors. The region's three core industries support 40% of the economy, with manufacturing accounting for $37 billion of the impact; finance, insurance and real estate, $35 billion; and distribution, $32 billion.

Leisch's stats show the Dallas/Fort Worth office market--the eighth largest in the US--absorbed 3.7 million sf year to date. "It's on course to absorb five million sf," he said. And if it does, it will be the best year since 2000. There is a 6.8-million-sf construction pipeline, of which 46% is preleased. "In theory, rents should be rising. In practice, they are," he said, "and we expect rents will continue to rise."

In the industrial sector, Leisch predicted the region will hit 10 million sf on the absorption barometer before the year ends. So far this year, the sector has absorbed 7.4 million sf, but as many in the crowd knew there are a few large closed deals that haven't yet made it into the bean-counting. Industrial developers have 9.4 million sf under construction; 20% of it's preleased. The sector too is on track for its best year since 2000, he said.

Leisch reported the region's multifamily market, the third largest in the US, is pointed in a "positive" direction after a four-year slump. The sector's average vacancy is 7.6%, still 2.2 points higher than the national average, but it apparently isn't enough of a gap to raise a red flag in the economist's mind. The scale is balanced with an absorption rate that is the second highest in the nation, he said.

But, it's the condo market where there is room for gain, according to Leisch. Unlike other major metros, the region's condo market is "healthy" and underdeveloped. "For a sophisticated city like Dallas, there's a long way to go in developing the condo market," he said. Dallas' 51,000 condos put it in 16th place in the nation, with only 4.4% of its housing inventory in the category. Year to date, there have been 800 sales versus last year's 1,100. High-rise prices go from $325 per sf to $525 per sf. Despite the opening, the pipeline has "shrunk," he said. "I don't know of any other market in the country that did this."

Leisch said the region's retail sector has been under the most pressure this year, mostly due to chain consolidations. His research showed the vacancy rate is 10% in a 122-million-sf inventory, up roughly two points. Rent will be true to history, rising 2% to 4% for the year. The local market is one of the nation's largest, fueled by a higher than national average on income and spending patterns, he pointed out.

Leisch's forecast and stats point to continued solid investment sales, just like other major metros. "Office and multifamily are trading ahead of last year," he added. If the prediction meets reality, Dallas/Fort Worth will hit $7 billion in sales for the second consecutive year although cap rates "are likely to remain low, but should rise moderately over the next two years," he concluded.