DALLAS—A majority of investors are focused on live/work/play submarkets in order to acquire buildings with walkable amenities, such as the Uptown submarket just north of downtown, the Preston Center submarket further north but still close in and the Upper Tollway/Legacy submarket, a suburban market with the urban amenities tenants want, according to Matthew Otte, senior associate, Transwestern. Upper Tollway, of course, is the location for the new regional headquarters of Toyota, Liberty Mutual, FedEx and JPMorgan, which will bring 15,000 workers to the area by 2018.
These markets both led Dallas/Fort Worth overall, Otte reports, with record pricing for assets in these submarkets during the past two years. In the Upper Tollway/Legacy submarket, deals have traded for $380 to $400 per square foot, whereas previously the peak pricing was at $225 to $250 per square foot. The average sale price per square foot for the past two years in the submarket is $228.44 with an average cap rate of 6.73%, he explains.
In Uptown, the pricing has soared even higher for core assets as two deals traded for a little more than $500 per square foot last fall with another three recent deals all trading for slightly more than $400 per square foot. The average sale price per square foot for the past two years in this submarket is $396.75 with an average cap rate of 5.38%.
Despite record high pricing, DFW remains a relatively attractive investment option when compared to the coastal markets (especially among institutional and foreign capital). However, appealing opportunities to invest are dwindling, specifically for value-add and opportunistic investors.
“Dallas is more of a value-add market for investors and a lot of the ones we talk to can't find anything here right now at the pricing they like,” Otte tells GlobeSt.com. “That being said, deals in the suburbs are still getting done, it just takes longer to find the right buyer. Suburban markets here in DFW are also some of the most active sales markets but that is partly due to our CBD not being as strong an office market as in other major cities. Although that is slowly starting to change as investors have come back to downtown are in the process of renovating a number of the '80s vintage skyscrapers into more modern and pedestrian-friendly buildings with more inviting lobbies and ground-floor amenities.”
Otte says there are hints of buyer optimism fading in some cases. Class-A assets (Colonnade with 1 million square feet, Providence Towers with 524,000 square feet and CityMark with 218,000 square feet) in the popular submarkets of North Dallas and Uptown failed to reached pricing expectations. “Leasing fundamentals are still good so sellers are happy to pull the listing and continue leasing if they don't reach their target sales price,” Otte tells GlobeSt.om. “Potential buyers aren't stretching for deals like they were just a few years ago.”
Investors will continue to be cautious going forward due to higher finance costs and more conservative underwriting in the later stages of this cycle but Otte expects the Dallas/Fort Worth market to continue to benefit from its socioeconomic fundamentals and remain a top investment market throughout 2017 and into 2018.
DALLAS—A majority of investors are focused on live/work/play submarkets in order to acquire buildings with walkable amenities, such as the Uptown submarket just north of downtown, the Preston Center submarket further north but still close in and the Upper Tollway/Legacy submarket, a suburban market with the urban amenities tenants want, according to Matthew Otte, senior associate, Transwestern. Upper Tollway, of course, is the location for the new regional headquarters of Toyota,
These markets both led Dallas/Fort Worth overall, Otte reports, with record pricing for assets in these submarkets during the past two years. In the Upper Tollway/Legacy submarket, deals have traded for $380 to $400 per square foot, whereas previously the peak pricing was at $225 to $250 per square foot. The average sale price per square foot for the past two years in the submarket is $228.44 with an average cap rate of 6.73%, he explains.
In Uptown, the pricing has soared even higher for core assets as two deals traded for a little more than $500 per square foot last fall with another three recent deals all trading for slightly more than $400 per square foot. The average sale price per square foot for the past two years in this submarket is $396.75 with an average cap rate of 5.38%.
Despite record high pricing, DFW remains a relatively attractive investment option when compared to the coastal markets (especially among institutional and foreign capital). However, appealing opportunities to invest are dwindling, specifically for value-add and opportunistic investors.
“Dallas is more of a value-add market for investors and a lot of the ones we talk to can't find anything here right now at the pricing they like,” Otte tells GlobeSt.com. “That being said, deals in the suburbs are still getting done, it just takes longer to find the right buyer. Suburban markets here in DFW are also some of the most active sales markets but that is partly due to our CBD not being as strong an office market as in other major cities. Although that is slowly starting to change as investors have come back to downtown are in the process of renovating a number of the '80s vintage skyscrapers into more modern and pedestrian-friendly buildings with more inviting lobbies and ground-floor amenities.”
Otte says there are hints of buyer optimism fading in some cases. Class-A assets (Colonnade with 1 million square feet, Providence Towers with 524,000 square feet and CityMark with 218,000 square feet) in the popular submarkets of North Dallas and Uptown failed to reached pricing expectations. “Leasing fundamentals are still good so sellers are happy to pull the listing and continue leasing if they don't reach their target sales price,” Otte tells GlobeSt.om. “Potential buyers aren't stretching for deals like they were just a few years ago.”
Investors will continue to be cautious going forward due to higher finance costs and more conservative underwriting in the later stages of this cycle but Otte expects the Dallas/Fort Worth market to continue to benefit from its socioeconomic fundamentals and remain a top investment market throughout 2017 and into 2018.
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