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DALLAS-From a historical perspective, Dallas/Fort Worth is on the right track at this stage of the comeback trail although its commercial real estate community is still getting pinched by the times.

“In a few months, the Texas economy will turn up,” Gregory H. Leisch, CEO of Alexandria, VA-based Delta Associates, said at a third-quarter presentation before Transwestern Commercial Services’ Dallas team and its clients. The deep-seated problem is that it’s a relatively jobless recovery, for now. “Dallas has never had a down year in unemployment until 2002,” he said.

Historically, the region creates 50,000 to 60,000 new jobs each year. The bitter reality of the past year, through the end of August, has been a loss of 25,300 jobs. But next year, Leisch said the region could recoup its loss and then some, predicting 30,000 new jobs in 2004 and a return to the norm in 2005. The down side is that it will take until next spring before Dallas/Fort Worth starts adding instead of subtracting jobs.

Delta Associates, Transwestern’s research affiliate, puts Dallas/Fort Worth at the top of the job-generating list for 2004-2010. In descending order, the rest of the top job markets will be the Los Angeles Basin, Atlanta, Phoenix, San Francisco Bay Area, Chicago, Houston, Washington, DC, New York, Denver, Boston and Austin, TX.

In the present day, though, Dallas/Fort Worth “is coming out of the recession slower than the other metro markets,” Leisch said. The nation’s seventh largest office market remains the emptiest, with Delta tabulating vacancy at 21.5% versus the national average of 16.3%.

Absorption and rents were still dragging at the third quarter close. The year to date of 378,000 sf looks promising, but the third quarter backtracked 409,000 sf. So far this year, 1.8 million sf of sublease space was pulled from the market, 822,000 of that in Q3. But, as most will acknowledge, much of that has rolled to direct space. “The legacy of that space (sublease) in terms of impact on rents will continue for 18 to 24 months,” Leisch said.

Effective rents remain down, thanks to free months and other concessions. Annual rent is down 2% whereas it dropped 10% in 2002. Leisch predicted rent will stabilize next year and hold steady through 2005. By 2007, Dallas/Fort Worth will re-emerge as a landlord’s market, he said.

The upshot is that the “office market is at the bottom,” Leisch said. “The turnaround has started.”

As for the industrial market, absorption is weak and vacancy is above the national average, but the indicators are “healthy,” Leisch concluded. To date this year, 904,000 sf has been absorbed in Dallas/Fort Worth and vacancy is 11.3%. Of the 6.1 million sf under construction, 48% of the product is pre-leased, Delta research showed.

“There isn’t the downward pressure (as in the office market), but nonetheless rents have been flat … and will be flat for the next 12 months,” Leisch acknowledged. But come 2006, it will once again be the landlord’s call.

Moving into investment sales, Leisch said the region’s cap rate is hovering at 8% and will continue to do so for a couple more years. Since 2000, sales rang up more than $1 billion, of which $648 million came this year. Nonetheless, that’s a 28% drop from last year’s volume. The good news is that half of the 2003 total was placed in the third quarter, much like elsewhere in the US as buyers raced to close before the interest rate rose. Lower rents have pushed selling prices for office buildings to the 2001 level, with class A properties averaging $138 per sf this year or $3 per sf less than last year.

“You can be a critic on one hand,” Leisch told GlobeSt.com, “but Dallas/Fort Worth is doing something right. The numbers speak for themselves. It’s going to be the No. 1 growth region in the US … as it was in the past.

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